Alcatel-Lucent Cuts Guidance, Shares Slump


Telecom equipment maker Alcatel-Lucent lost over a tenth of its stock market value after issuing its third outlook warning this year.

Alcatel-Lucent said on Thursday it had seen a change in capital spending among its wireless customers in North America, which meant it had not compensated for lower sales prices with higher volumes of sales.

Alcatel-Lucent now expected 2007 revenue growth to be flat to slightly up, at constant exchange rates. It previously forecast that revenue would grow around 5 percent at constant rates.

The company also projected third quarter operating income "around break-even."

Alcatel-Lucent shares were down 12.1% at 6.37 euros in mid-morning trade. The stock was the top loser on France's benchmark CAC-40 index and weighed on European stock markets.

"I was in the stock but I dumped the whole thing," said Ion-Marc Valahu, head of trading at Amas Bank in Switzerland.

Profit Warnings

Alcatel-Lucent was created in December by the takeover of U.S-based Lucent by France's Alcatel, but the new group has been dogged by merger-related costs and uncertainty over product integration.

The latest cut to its revenue forecast comes after Alcatel-Lucent issued a profit warning in January, followed by a sales warning in April. Rumors of a new profit warning had caused Alcatel shares to fall at the end of last week.

"Once again, it's a profit warning," said Agilis Gestion fund manager Frederic Hamm.

"We're not going to get into the stock because of the profit warning problems, even if the sector looks attractive and the stock is at an attractive level," added Hamm.

The cost of insuring debt of Alcatel-Lucent rose sharply. Five-year credit default swaps on Alcatel were 20 basis points wider at 232.5 basis points in early morning trade, according to prices from Deutsche Bank.

Alcatel-Lucent said it was continuing to work on its integration plans and left its target for synergy-related pretax savings this year unchanged at 600 million euros ($832 million).

"While the company acknowledges that it is competing in a challenging market environment and executing a complex merger, it remains confident that it has the right combination of people and assets to position the company as a leading player in the industry," Chief Executive Patricia Russo said in a statement.

Alcatel-Lucent is the market leader for fixed-line network equipment and associated services, but lags Ericsson in wireless hardware.

Cut-throat competition from Ericsson and other rivals has forced Alcatel-Lucent to sell wireless network products at relatively low prices, putting pressure on margins.

It was the second blow to the technology sector this week after U.S. chipmaker Texas Instruments barely changed its current quarter revenue and earnings forecasts, disappointing investors who had hoped for a raised outlook.

Amas Bank's Valahu said Alcatel-Lucent's statement contrasted unfavorably with one from U.S. rival Cisco in August, when Cisco reported a better-than-expected fourth-quarter profit and issued a bullish outlook.

Based on latest prices, Alcatel--Lucent shares have fallen by around 40% since the start of 2007, making them one of France's worst performing blue-chip stocks.