U.S. News

Alcatel-Lucent Shares Drop After Warning


Shares in Alcatel-Lucent slumped Tuesday after the telecommunications giant warned that a weak performance in the fourth quarter will lead to full-year 2006 revenue coming in at a level similar to its 2005 performance.

The share price in the company, a recent merger between Lucent and France's Alcatel, opened down 11%, at 9.97 euros ($12.89) in Paris after the early morning announcement.

Alcatel-Lucent Profit Warning

In its preliminary unaudited results for the fourth quarter of 2006, Chief Executive Patricia Russo said that spending shifts in North America and heightened competition worldwide would affect the company's results.

"The last quarter of the year proved challenging from a market perspective, driven by a shift in spending from some of our large North American customers and heightened competition in the global wireless market," Russo said.

But she said the company should resume growth in 2007.

The company, which completed its $11.6 billion merger in November, expects fourth-quarter revenues of about 3.87 billion euros ($5 billion).

On an adjusted pro-forma basis, including the combined operations for Alcatel-Lucent as of Jan. 1, 2006, the company said it expects to report fourth-quarter revenues of around 4.42 billion euros ($5.71 billion), down from revenue of 5.25 billion euros ($6.79 billion) in the fourth quarter 2005. Operating profit for the quarter is expected to break even.

On a pro forma basis, the company expects full-year revenues to be about 18.3 billion euros ($23.67 billion), compared with 18.6 billion euros ($24 billion) in 2005.

2007 Expectations

Alcatel-Lucent added that it expects cost savings for 2007 to be 200 million euros ($258.72 million) higher than its initial targets, reaching 600 million euros ($776 million).

Russo added: "In a market that continues to be highly competitive, Alcatel-Lucent has decided to take additional actions to reduce its cost structure."

Russo added that the company was making "considerable progress" in planning the convergence of its voice, data and video communication products.

Analyst Edmund Shing of Kepler said the results are "clearly not good."

"They blame the difficult wireless and handset markets but this is no surprise," he says. "Of course, they sweetened their announcement by saying their synergies for 2007 would be higher than expected, ... but the rest is still not good."