Excluding the writedown, Alcatel-Lucent made an annual loss of 443 million euros ($647.8 million), beating a 789 million euro average forecast of analysts sampled by Reuters Estimates.
The company said it expected to incur an adjusted operating loss in the first quarter of 2008 due to "seasonal patterns."
"The macroeconomic environment has created uncertainty in our markets in the last few months," Alcatel-Lucent Chief Executive Patricia Russo said in a statement.
Shares of Alcatel closed 0.2 percent higher Friday.
"The biggest problem is the outlook for this year. Where are the 600 million euros promised in savings for 2007? Looks like they are going in the pockets of customers not in the pockets of shareholders," Richard Winsor, analyst at Nomura, told CNBC.
In light of the outlook and results, the group said it was prudent to scrap the dividend payment for 2007.
Alcatel-Lucent disappointed investors by providing a forecast for an adjusted operating margin of between 2.5 and 5 percent for 2008 while they expected on average 5.4 percent.
Finance Director Hubert de Pesquidoux said the bulk of operating losses in the year were mostly incurred by the group's mobile activities. "This has been a difficult year," he said in a conference call.
Alcatel-Lucent generated sales of 17.8 billion euros in the 12 months to Dec. 31, slightly above a forecast of 17.5 billion euros based on Reuters Estimates.
The group forecast the global telecoms equipment sales and services market to be flat to slightly up at constant euro/dollar exchange rate in 2008 and slightly down at the current rate.
In the fourth quarter, the group made sales of 5.23 billion euros, up 18 percent year-on-year, and an adjusted operating profit of 303 million euros, excluding exceptional, restructuring and impairment charges.
Its performance compared with a loss of 3 million euros for the same period last year on the same basis.
"Solid Q4, weak guidance," said one London-based analyst about the company's statement.
Alcatel-Lucent fell to a record low of 3.80 euros but recovered as European stock markets turned higher.
"The market has sabotaged the merger to some degree. I think management have not been nearly good enough in delivering savings to investors rather than to customers," Winsor said.
- Reuters contributed to this report