Alcatel-Lucent dips into loss as sales decline and margins get thinner

The company's cost-cutting program failed to keep pace with declining sales

Alcatel-Lucent reported a third-quarter loss and declining gross margins, as its cost-cutting program failed to keep up with declining sales of its network equipment and related services.

The company reported a net loss of ¬146 million (US$188 million as of the last day of the period reported), compared to a year-earlier net profit of ¬194 million. Revenue declined 2.8 percent to ¬3.60 billion, from ¬3.70 billion a year earlier, while gross margin slipped to 27.9 percent from 35.3 percent a year earlier.

Revenue rose by 2 percent year on year to ¬1.46 billion in North America, but fell 15.4 percent to ¬893 million in Europe.

Sales of carrier networking equipment declined 4.3 percent, buoyed by strong sales of Internet Protocol networking equipment and by currency fluctuations. At constant exchange rates the decline would have been 11.8 percent. IP equipment sales rose 30.3 percent, to ¬490 million. Broadband local loop sales, including DSL and GPON (gigabit passive optical network) equipment, rose 26.3 percent to ¬389 million. However, wireless equipment sales dived 18.9 percent, to ¬837 million, and optical networking equipment sales fell 17.5 percent, to ¬480 million.

Alcatel-Lucent's software, services and solutions division did somewhat better, with services contributing all of the growth. Overall revenue from the division grew 5 percent, to ¬1.16 billion, of which services contributed ¬1.06 billion, up 6.2 percent. Telefonica was one of the biggest customers here: the company is in the process of streamlining and automating supervision of all its networks through a single platform.

Enterprise networking equipment sales of ¬218 million were 13.8 percent down on a year earlier, or 16.5 percent excluding the effects of currency fluctuations. The company made an operating loss of 3.2 percent of revenue on these products. Sales of voice networking products continue to decline, but Alcatel-Lucent is seeing some success in sales of data networking equipment to small and medium-size businesses and to data centers, where the company's 10Gbps products are proving popular, it said.

The company provided little guidance on future performance, beyond saying it expects operating margin to be better in the second half of this year than in the first half.

Peter Sayer covers open source software, European intellectual property legislation and general technology breaking news for IDG News Service. Send comments and news tips to Peter at peter_sayer@idg.com.

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