UPDATE 5-Alcatel-Lucent cuts key margin target,shares plunge

* 2009 net loss bigger than expected

* Q4 net profit of 46 mln euros after 13 quarters of losses

* Further cost cuts of 300-400 million euros this year

* Shares down 12 percent

(Adds CFO comments, updates shares)

By Leila Abboud

PARIS, Feb 11 (Reuters) - Alcatel-Lucent (ALUA.PA) posted a wider-than-forecast loss, missed revenue expectations and cut its 2010 operating margin target, buffeted by a tough market for telecommunications gear.

Shares plunged at the French-American group that has struggled to compete with larger European rivals Ericsson (ERICb.ST) and Nokia-Siemens Networks [NOKI.UL], as well as rising low-cost Chinese companies Huawei [HWT.UL] and ZTE (0763.HK) since it was formed in a merger in 2006.

Investors reacted negatively to the group scaling back its forecast for 2010 adjusted operating profit margin to 1-5 percent from 5 percent.

"The visibility on the market is a little bit clouded," Finance Director Paul Tufano told reporters. "We are being prudent on opening up the range."

Ericsson and Nokia Siemens Networks have declined to predict market growth this year as economic uncertainty makes it tough to gauge the willingness of operators to spend on network gear.

Alcatel-Lucent shares were down almost 12 percent to 2.06 euros at 1453 GMT, the largest decliner on the French blue-chip CAC 40 Index .FCHI.

Stuart Jeffrey, an analyst at Nomura Securities, said markets were reacting negatively to the cut in 2010 margin outlook.

Other analysts attributed the share decline to significantly weaker fourth-quarter revenue that hinted at market share erosion, especially in wireless.

Telecom equipment gear makers suffered last year as telecoms operators cut back their spending on mobile and fixed network equipment to maintain profits as revenues dipped.

Although the outlook has brightened somewhat, few analysts expect demand for telecom gear to fully recover until next year. [ID:nLDE60J19H] [ID:ID:nLDE60I1ZM]

RESULTS BELOW CONSENSUS

Alcatel posted 2009 revenue of 15.16 billion euros ($20.91 billion), an adjusted loss of 56 million euros, and a net loss of 524 million euros. Analysts expected revenues of 15.68 billion, an adjusted profit of 269.7 million and a net loss of 472 million, according to Thomson Reuters I/B/E/S.

Fourth-quarter revenue fell nearly 20 percent from a year earlier to 3.967 billion, lower than analysts had expected. Its main carrier unit, which includes fixed and wireless gear sold to telecom operators, barely broke even last quarter, even though the end of the year usually sees a seasonal boost.

Operating margins in the services and applications business, where Alcatel-Lucent acts as a consultant to operators, were higher than the same period last year, however.

Overall, Alcatel-Lucent did post net profit of 46 million euros in the fourth quarter, which was its first in the 13 quarters since it was created in a merger in late 2006.

Alcatel-Lucent confirmed its view that the global telecom gear market would grow 0 to 5 percent this year. Its rivals have declined to give predictions saying the market is too uncertain.

Although operators will remain cautious, they will invest in areas where they can improve customers' experience, such as mobile Internet, said Alcatel CEO Ben Verwaayen, the Dutch-born former BT Plc head who was appointed in September 2008.

"That's why I think you will see a better market in 2010 than you see in 2009," he said.

Alcatel-Lucent exceeded its pledge to cut its costs and administrative expenses structure by 750 million euros last year to bring down the break-even point when it becomes profitable.

It actually trimmed 960 million euros, and expects further cuts of 300-400 million this year, said Tufano.

Net cash stood at 866 million euros at the end of 2009, while the group generated free cash flow of 173 million in the last quarter despite weak revenue. Analysts said this could calm concerns that the group may have to raise money this year as debt comes due and revenue stagnates. [ID:nLDE60I2JU]

"Our balance sheet is strong," CFO Paul Tufano told Reuters. "We do not need to raise money this year." He added that the group aimed to reach break-even on cash flow this year.

Vincent Rech, Societe Generale analyst, said Alcatel-Lucent is likely to continue to struggle.

"The fundamentals of the business haven't really changed - their portfolio of products, their positioning, the intense competition of the market," he said. "Their annual revenues have decreased in the past few years, and that won't likely change." ($1=.7251 Euro) (Editing by Sharon Lindores and Jon Loades-Carter)