UPDATE 3-Alcatel seeks to shore up balance sheet after Q3 loss

Fri Nov 2, 2012 11:33am EDT

* Quarterly sales slow globally as operators cut spending

* Reviewing options to strengthen balance sheet

* Asset sales, debt reprofiling among options - CFO

* Submarine cable, enterprise units could be sold - sources

* Pricing pressure hurts margins

By Leila Abboud and Gwénaëlle Barzic

PARIS, Nov 2 (Reuters) - Telecom equipment maker Alcatel-Lucent may sell assets to strengthen its balance sheet after posting a second straight quarterly loss as its customers around the world cut spending on mobile and fixed networks.

Chief Financial Officer Paul Tufano said the group was considering options such as "reprofiling our debt or an infusion of liquidity, including asset sales."

Alcatel's submarine cable business and a unit that sells telephone systems to big companies are both candidates for sale, three people familiar with the matter said.

Goldman Sachs analysts estimated that sales of the submarine optic and the corporate telephony units could raise up to 400 million euros. One of the sources said the valuation would be "much higher", without giving details, while Bernstein analyst Pierre Ferragu said the submarine business alone could attract bids of over $1 billion "if sold at its best."

Despite making cost cuts, Alcatel-Lucent burned through 1.03 billion euros in the first nine months of this year, compared with 978 million euros last year.

The company faces about 2.2 billion euros in debt repayments through to the end of 2015, with a major deadline on January 1, 2015, according to analysts.

Chief Executive Ben Verwaayen, who has been struggling to turn the company around since September 2008, said the group was on track with a cost-cutting plan to axe roughly 5,500 jobs.

Third-quarter revenue fell 2.8 percent year-on-year to 3.60 billion euros ($4.66 billion) in response to lower spending on n e twork gear in the United States and Asia, and a steep 15 percent decline in Europe.

Analysts were expecting third-quarter sales of 3.51 billion euros, according to the Thomson Reuters I/B/E/S mean forecast of 11 analyst estimates.

Alcatel-Lucent's adjusted operating loss widened to 125 million euros in the third quarter, from a loss of 31 million in the second.

CUSTOMERS RETRENCH

Like rivals Ericsson and Nokia-Siemens Networks , Alcatel-Lucent's profit margins have been hit hard this year by customers' spending cutbacks.

Even Verizon, Sprint and AT&T, which spent heavily last year to build super-fast fourth generation mobile networks, are slowing spending this year.

The U.S. carriers account for more than one-third of Alcatel's sales and are a big profit driver because the absence of cheap Chinese rivals in the U.S. market has kept prices higher.

Alcatel-Lucent shares are at historical lows of around 0.77 euros, which has prompted some investors to bet against the group. Roughly 16 percent of its outstanding shares are out on loan, making it the most shorted stock on the Paris Bourse, according to Markit data.

Bernstein analyst Ferragu advised caution given the group's structural challenge of being smaller than rivals Ericsson and China's Huawei and the weak outlook for telecom gear spending.

"Despite a stock price largely reflecting liquidity concerns, at a significant discount of our estimate of the company's liquidation value, we continue to recommend staying away from the name, as the operating performance of Alcatel-Lucent is likely to continue to deteriorate," Ferragu wrote.

Alcatel confirmed its annual goals of achieving a second-half operating margin better than the first half and ending the year in a positive net cash position.

Under Verwaayen, Alcatel posted its first annual profit last year since it was formed in a 2006 tie-up between Alcatel SA and Lucent Technologies. It could flip back into the red this year.

Alcatel-Lucent warned in July it would not make its annual profit target after swinging to a loss in the second quarter.

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