Alcatel-Lucent losses decline in 3Q

PARIS - Alcatel-Lucent's new chief executive says that if the chronically money-losing telecommunications equipment maker is ever to find its way back to profitability, the restructuring and job cuts of the past years won't be enough.

Ben Verwaayen, the former British Telecom CEO who took over at Alcatel-Lucent last month following the ouster of Patricia Russo, said he will complete a comprehensive review by early December, aimed at "streamlining" operations and bringing Alcatel-Lucent in closer touch with its clients.

"You can't cut your way to growth," Verwaayen said at a news conference. "The first priority must be the customer."

Alcatel-Lucent is the world's largest supplier of fixed-line networking equipment for telecommunications operators, and has suffered as carriers in Europe and the U.S. have slashed investment in response to the weakening economy and a steady loss of subscribers.

The company announced the strategic review alongside its third quarter earnings, which showed net losses for the seventh consecutive quarter and sales continuing to fall in its core business.

The company's shares rose sharply, though, as it maintained its guidance for the full year, reassuring investors who've been burned by a string of profit warnings since the company was formed through Alcatel SA's purchase of Lucent Technologies Inc. for $11.4 billion in 2006.

Alcatel-Lucent's U.S. shares gained 22 cents, 9.5 percent, to close at $2.53.

One of the first choices Verwaayen faces in his review is whether to sell Alcatel-Lucent's nearly 21 percent stake in French defense electronics contractor Thales SA. The stake is worth about 1.3 billion euros ($1.63 billion) at current market prices.

"We work very well with Thales, but we also work very well with HP," Verwaayen said. "We don't need to own a stake in our partners to work well with them."

Alcatel-Lucent said its quarterly losses shrank to 40 million euros ($51 million) in the third quarter, down from 345 million euros a year earlier, when earnings were hammered by restructuring charges.

Alcatel-Lucent has engaged in successive rounds of restructuring, with the current plan calling for the elimination by the end of next year of 16,500 jobs. The company employed 77,000 people at the end of last year and 89,000 at the time of the merger.

The company has budgeted 700 million to 900 million euros ($894 million to $1.15 billion) this year and next for this purpose, with two-thirds to come this year.

Alcatel-Lucent continued to suffer in the third quarter from falling investment by telecommunications operators, its largest customers. Sales in this business fell 13 percent to 2.73 billion euros ($3.49 billion), as the operators' subscriber base continued to shrink and the worsening economy caused telecom carriers in Europe and North America to cut investments.

The company reiterated its outlook for both the overall telecom equipment market and its own sales and operating profitability for the full year. Sales are expected to fall in the low- to mid-single digit percentage range, while operating margin is expected to be in the low- to mid-single digit range. The overall market will be flat, excluding foreign exchange effects, Alcatel-Lucent said.

"I think there was an expectation that the company would cut the guidance for the full year, and the company has maintained it, which is seen as quite a positive thing," said Richard Windsor, a telecommunications analyst at Nomura International in London.

Despite this, Alcatel-Lucent still has a challenge ahead of it to lift profitability in its core business — selling networking gear to operators like France Telecom SA, Sprint Nextel Corp. and Verizon Wireless.

Verwaayen said returning Alcatel-Lucent to profitability was his "first priority," but he declined to set a target date.

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