Alcatel sees improvement ahead after Q1 income drops

Alcatel reported Q1 net income of Euro 124 million, down 55 percent year-on-year, on revenue of Euro 2.61 billion, up 3.7 percent.

French telecommunication equipment maker Alcatel reported revenue for the first quarter up 3.7 percent, but net income down 55 percent compared to a year earlier. Revenue from sales of mobile phone networks rose while that from fixed telecommunications networks declined. The company's enterprise networking revenue remained stable, it said Thursday.

Revenue for the quarter totalled Euro 2.61 billion (AUD$4.3 billion as of March 31, the last day of the period reported), up from Euro 2.52 billion a year earlier. Net income fell to Euro 124 million from Euro 278 million in the year-earlier quarter. (Alcatel restated prior-year figures to take account of the disposal of optical fiber, mobile phone handset and power systems activities.)

Although first-quarter revenue from fixed-line communications fell, to Euro 987 million from Euro 1.09 billion a year earlier, Alcatel expects the market to rebound in the second quarter. The company is particularly optimistic about progress in the market for "triple-play" products, which allow broadband network operators to deliver telephony, digital TV and Internet services over a single connection. Operating profit in the division rose to Euro 50 million, from Euro 46 million a year earlier, much of it from optical networking, the company said.

Sales of mobile telecommunications equipment rose to Euro 789 million, from Euro 617 million a year earlier. However, operating profit in the division was hit by unfavorable exchange rates and the cost of launching new products, and fell to Euro 66 million from Euro 80 million a year earlier.

Private communications revenue remained steady at Euro 848 million, compared to Euro 849 million a year earlier, and operating profit for the quarter rose to Euro 34 million from Euro 28 million a year earlier. Poor performance from satellite construction was offset by growth in vertical markets such as rail signalling, the Paris company said.

Looking ahead, Alcatel expects revenue for the full year to grow at between 1 percent to 6 percent, assuming a constant exchange rate between the euro and the dollar, and for net income to grow at 10 percent or more.

Alcatel's future profitability depends on two factors, it said. As selling prices continue to fall, it must cut costs by redesigning products and processes. It must also grow revenue by tapping new markets. Costs are under control, and orders were up in the first quarter, particularly in vertical markets such as transport, energy and the public sector, Alcatel said. The company spent Euro 344 million, or 13.2 percent of sales, on research and development during the quarter in its quest for new and cheaper products.

Around the world, western Europe accounted for 42 percent of Alcatel's revenue in the first quarter, with the rest of Europe contributing another 7 percent. North America brought in 15 percent of revenue, and Asia 14 percent, Alcatel reported. The results are the first quarter the company has reported in line with new International Financial Reporting Standards.

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