UPDATE 1-Alcatel-Lucent posts loss despite network unit growth

Fri Apr 26, 2013 2:36am EDT

* Job cut programme lifts charges, drags on profit

* Q1 sales 3.23 bln eur vs poll avg 3.18 bln

* Q1 net loss 353 mln eur vs poll avg 239.8 mln

* North America sales up 15 pct in Q1 (Adds CFO comments, details)

By Leila Abboud

PARIS, April 26 (Reuters) - Telecom equipment maker Alcatel-Lucent posted a first-quarter net loss on Friday even as its key business of network gear sales to big carriers grew 4.2 percent from a year ago on strength in North America.

Revenue rose 0.6 percent to 3.23 billion euros ($4.2 billion), ahead of average analyst estimates, while the quarterly net loss of 353 million was worse than expected.

The loss included 122 million euros of restructuring charges linked to a plan to cut 5,500 jobs worldwide. Such charges are expected to reach 500 million this year as the group tries to shrink to a size where it can be profitable.

Analysts had on average expected first-quarter sales of 3.18 billion euros and a net loss of 239.8 million, according to Thomson Reuters I/B/E/S.

The group's new chief executive, Michael Combes, who took over in early April, said market trends were encouraging in the first quarter, but noted free cash flow remained a challenge.

The Franco-American group burned 533 million euros in cash through its activities in the first quarter, widening from 162 million a year ago.

Chief Financial Officer Paul Tufano said a few hundred million euros of the cash burn stemmed from the timing of payments from customers, citing as an example the submarine cable unit, where contracts had been won but pre-payment for work had not yet arrived.

"This doesn't represent a step down in terms of cash burn," he said. "It's just a question of timing."

Since it was formed in a merger in 2006, Alcatel-Lucent has proven unable to generate steady profits or cash, in part because its cost base remains high.

U.S. REBOUND

CEO Combes is expected to present his plan for the group in June.

"We are actively reviewing the group's businesses and operating model to design the conditions for value creation in the future," he said in a statement.

Alcatel-Lucent is highly dependent on the U.S. - where it generated nearly half of sales in the quarter - and has benefited from AT&T and Verizon's large investments in mobile upgrades in recent years. Sales in North America rose 15 percent in the first quarter to 1.55 billion euros.

The U.S. is expected to drive a rebound in overall spending on network gear this year, according to analysts, after a contraction of roughly 7 percent in 2012. Market research firm Gartner forecasts a 2.3 percent uptick for telecom gear, while Infonetics sees a 13 percent rise in sales of mobile gear.

Ericsson on Thursday reported 7 percent growth in its network unit for the first quarter, but rival Nokia Siemens Networks saw sales drop 5 percent.

Alcatel-Lucent shares are up 8.5 percent this year to 1.09 euros, giving it a market capitalisation of 2.5 billion euros. They fell nearly 17 percent last year. ($1 = 0.7689 euros) (Editing by James Regan)

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