Alcatel third-quarter loss widens as customers cutback

Fri Nov 2, 2012 9:22am GMT

Visitors walk at the Alcatel-Lucent booth at the Mobile World Congress in Barcelona February 28, 2012. REUTERS/Albert Gea

Visitors walk at the Alcatel-Lucent booth at the Mobile World Congress in Barcelona February 28, 2012.

Credit: Reuters/Albert Gea

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PARIS (Reuters) - Telecom equipment maker Alcatel-Lucent (ALUA.PA) may sell assets to strengthen its balance sheet after posting a second straight quarterly loss as its customers around the world cut spending on mobile and fixed networks.

Chief Financial Officer Paul Tufano said the group was considering options such as "reprofiling our debt or an infusion of liquidity, including asset sales."

Despite making cost-cuts, Alcatel-Lucent burned through 1.03 billion euros in the first nine months to September 30 this year, compared with 978 million euro last year.

The company faces about 2.2 billion euros in debt repayments through end 2015, with a major deadline on January 1, 2015, according to analysts.

Chief Executive Ben Verwaayen, who has been struggling to turn the company around since September 2008, said the group was on track with a cost-cutting plan to axe roughly 5,500 jobs.

Third-quarter revenue fell 2.8 percent year-on-year to 3.60 billion euros ($4.66 billion) in response to lower spending on network gear in the U.S., Asia, and a steep 15 percent decline in Europe.

Analysts were expecting third-quarter sales of 3.51 billion euros, according to the Thomson Reuters I/B/E/S mean forecast of 11 analyst estimates.

Alcatel-Lucent's adjusted operating loss widened to 125 million euros in the third quarter, from a loss of 31 million in the second.

Like rivals Ericsson (ERICb.ST) and Nokia-Siemens Networks (NOK1V.HE), Alcatel-Lucent's profit margins have been hit hard this year by customers' spending cutbacks.

Even Verizon (VZ.N), Sprint (S.N) and AT&T (T.N), who spent heavily last year to build super-fast fourth generation mobile networks, are slowing spending this year.

The U.S. carriers account for more than one-third of Alcatel's sales and are a big profit driver because the absence of cheap Chinese rivals in the U.S. market has kept prices higher.

Alcatel-Lucent shares are at historical lows of around 0.77 euros, which has prompted some investors to bet against the group. Roughly 16 percent of its outstanding shares are out on loan, making it the most shorted stock on the Paris Bourse, according to Markit data.

Pierre Ferragu, analyst at Bernstein Research, advised caution given the group's structural challenge of being smaller than rivals Ericsson and China's Huawei (002502.SZ) and the weak outlook for telecom gear spending.

"Despite a stock price largely reflecting liquidity concerns, at a significant discount of our estimate of the company's liquidation value, we continue to recommend staying away from the name, as the operating performance of Alcatel-Lucent is likely to continue to deteriorate," Ferragu wrote.

Alcatel confirmed its annual goals of achieving a second-half operating margin better than the first half and ending the year in a positive net cash position.

Under Verwaayen, Alcatel posted its first annual profit last year since it was formed in a 2006 tie-up between Alcatel SA and Lucent Technologies. It could flip back into the red this year.

Alcatel-Lucent warned in July it would not make its annual profit target after swinging to a loss in the second quarter.

($1 = 0.7730 euros)

(Reporting by Leila Abboud; Editing by Lionel Laurent and Jane Merriman)

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