Alcatel and Lucent report rising revenue

Companies announce revenues ahead of their planned merger by year-end

Telecommunications equipment manufacturers Alcatel and Lucent Technologies both reported increased revenue for the quarter ended Sept. 30.

The companies coordinated their announcements Tuesday, ahead of their planned merger by year-end.

Alcatel reported revenue of Euro 3.34 billion (AUD$5.53 billion as of Sept. 30) for its third fiscal quarter, up 1.4 percent from Euro 3.29 billion a year earlier. Net income for the quarter fell to Euro 155 million from Euro 266 million a year earlier. That translates to earnings per American Depository Share of US$0.14, just under the figure of US$0.15 per share forecast by financial analysts polled by Thomson Financial.

Lucent's revenue rose too, to US$2.56 billion, up 5 percent from US$2.43 billion a year earlier. Revenue within the U.S. rose by 17 percent, but revenue from elsewhere fell by 14 percent. Net income for the quarter, the last of Lucent's fiscal year, remained stable at US$371 million, giving earnings per share of US$0.07, compared to the analysts' consensus estimate of US$0.04.

Alcatel reported growth in revenue and profit in its fixed-line networking division, as operators convert legacy networks to all-IP (Internet Protocol) systems. Revenue in the sector rose 6 percent to Euro 1.36 billion from Euro 1.28 billion a year earlier, with operating income of Euro 151 million, up 25 percent from Euro 121 million a year earlier.

Performance in the mobile division was disappointing, however. Revenue there fell 9 percent to Euro 994 million, from Euro 1.09 billion a year earlier, while operating income fell 45 percent to Euro 64 million, from Euro 116 million a year earlier.

Customers are putting off major purchases until Alcatel completes its merger with Lucent, and its acquisition of Nortel's UMTS (Universal Mobile Telecommunications System) radio technology, Alcatel Chief Executive Officer (CEO) Serge Tchuruk said during a conference call with journalists.

"It's a wait-and-see situation," he said.

In a separate conference call, Lucent CEO Patricia Russo echoed that explanation:

"The fact that the deal has not yet closed has introduced customer-buying uncertainty in areas where there is some product overlap," Russo said.

Lucent saw a 43 percent drop in converged core network revenue for the quarter, down to US$157 million from US$236 million a year earlier, while multimedia network revenue slipped 6 percent to US$440 million, from US$470 million a year earlier.

There were two bright spots: Mobile access network revenue grew 18 percent, to US$1.28 billion, and service revenue rose 9 percent, to US$644 million.

"Services have been an important business for us. We have been able to grow our services business although our product business has declined," Russo said.

This will be the last time the companies report their financial results separately: In April, they announced their intention to merge, and now expect to complete the deal by the end of the year. Shareholders of both companies have approved the deal, as have U.S. and European regulators.

The only remaining obstacle is the U.S. Treasury's Committee on Foreign Investments in the U.S. (CFIUS), Tchuruk said during his conference call. The companies are working with it to win its approval for the deal, which could close as early as November, he said.

Announcing the deal, Alcatel and Lucent predicted the combined company would have annual revenue of Euro 21 billion based on their financial results for 2005. They expect to make annual savings of Euro 1.4 billion after the merger, in part by laying off around 10 percent of their 88,000 employees.

Observers have expressed incredulity at the savings target, but Alcatel is "comfortable" with the figure, and will aim to do even better, Tchuruk said.

Russo will head the combined company, Alcatel Lucent, which will be based in Paris, where Alcatel has its headquarters.

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