Alcatel-Lucent Announces Second Quarter of Losses

on Nov 2, 2012

Alcatel-Lucent (EPA:ALU), the French phone-equipment maker, posted its second straight quarter of losses on 2 November, hurt by a sector-wide slowdown as carriers cut back on spending on mobile and fixed networks.

**Q3 Results**
Third-quarter revenue decreased by 2.8 percent year-on-year to €3.6 billion (£2.89 billion) hurt by a sharp decline in recession-plagued Europe and lower network gear sales in US and Asia. Adjusted operating loss widened to €125 million (£100 million) compared with a €31 million (£24.9 million) loss in the second quarter of this year.

“Our third quarter results are reflective of the significant transformation we are undertaking both in terms of scope and timing. In addition, our revenue growth and gross margin were impacted by overall carrier spending dynamics and product mix, especially in wireless.” Ben Verwaayen, chief executive at Alcatel, commented in today’s report. “We ended the quarter with €4.7 billion (£3.77 billion) in cash and marketable securities and we target a positive net cash situation at year end 2012. We are taking action to strengthen our balance sheet and we are reviewing a variety of options, which we will communicate when appropriate.”

**France’s Most Shorted Stock**
!m[The French Company Struggles to Cut Back on Costs and Patch Up its Bleeding Cash Reserves](/uploads/story/707/thumbs/pic1_inline.png)Alcatel’s stock has lost 57 percent over the past 12 months and reached a 23-year low, earning first place as France’s most shorted stock. According to London-based financial information provider Markit, roughly 16 percent of the company’s shares are on loan (borrowed stock is typically shorted) – more than six times the European average.

“I do not see any way out for them,” said Mark Hawtin, head of investments at GAM U.K. Ltd., which manages about $60 billion (£37.24 billion) and is shorting the stock. “The company has a lack of scale in wireless and a high exposure in wireline, which is coming under increasing threat.”
**Cost-Cutting and Cash Crunch**
Mr Verwaayen has been trying to revitalize the company but the market has been rocked by Asian rivals making cheaper network gear. Alcatel-Lucent attempted to establish closer ties with carriers to help it land new contracts –it has revamped its research units to get new products onto the market faster and has even allowed mobile operators to participate in the development process. The company also shed 15 percent of its French workforce as part of a €750 million (£602 million) savings plan outlined in July. A total of 5,500 jobs have been lost out of 78,000 worldwide.

Over the next two to three years the company faces a deadly cash crunch. Next June Alcatel-Lucent needs to repay a $765 million (£470 million) convertible debenture. It also faces a €460 million (£286 million) debt with maturity date between March-April 2014, and a €1 billion (£621 million) bond due January 2015. When taking into account the fact that some of the funds have to be relocated as seasonal working capital or are held in China, which applies strict exchange controls, the current €4.7 billion (£3.77 billion) in cash changes significantly to below €2.5 billion (£2 billion) and poses the question on whether Alcatel-Lucent will be able to meet its financial obligations.

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