* Sales in-line at 3.67 bln euros
* Losses narrow as U.S. grows
* Cost cuts help gross margins
* CEO Michel Combes says trying to save Alcatel
* Share price up 18 pct
By Leila Abboud
PARIS, Oct 31 Telecom equipment maker
Alcatel-Lucent posted higher revenues and a narrower
loss in the third quarter helped by double-digit growth in the
highly profitable U.S. market as it raced to cut costs to
Investors cheered the progress made by Chief Executive
Michel Combes seven months after he took the reins of the
loss-making group, sending shares up 18 percent at 1326 GMT as
some analysts predicted consensus forecasts would be upgraded.
Combes strategy is to streamline the group to focus on IP
networking products, which help telecom operators carry mobile
data traffic, and high-speed mobile and fixed broadband, while
slashing the staff by 10,000 to save 1 billion euros by 2015.
He hopes to end six straight quarters of losses and save the
group, which is on its third CEO and sixth turnaround plan since
its creation in a 2006 merger.
Combes has also pledged 1 billion euros in asset sales by
2015, which were being "actively" worked on now.
And he appeared to hint at being open to a bolder move,
namely selling off the company's loss-making wireless business
that has struggled to keep pace with larger rivals despite
having a strong position in the United States.
Asked by an analyst whether the wireless business was
strategic to the whole of Alcatel, Combes replied:
"My commitment to investors is to deliver on the Shift plan
and create optionality depending on where the market goes long
term," he said, referring to the turnaround plan from June.
In September, Reuters reported that Nokia was
discussing internally whether to approach Alcatel-Lucent about a
tie-up or buying its wireless unit, funded by the proceeds it
will get from the sale of its handset business to Microsoft Corp
Revenue in the third quarter rose 7 percent on a constant
currency basis and 1.9 percent on a reported basis to reach 3.67
billion euros ($5.05 billion).
The group posted a net loss of 200 million euros, and had a
gross margin of 32.6 percent, up from 27.8 percent a year ago.
The margin improvement came from selling higher-margin IP
networking routers and broadband products, as well as cost cuts.
Revenue from IP products grew by 7 percent to 580 million euros,
while North American revenues climbed by 13.6 percent to 1.65
Analysts had expected third-quarter revenue of 3.6 billion
euros and a net loss of 139.4 million, according to Thomson
The French-American group said it consumed 218 million euros
of cash in the quarter, taking the cash used so far this year to
roughly 1 billion euros. Cash burn has been a perennial problem
for the group, which has a higher cost base than peers.
Alcatel-Lucent's woes stem from intense competition not only
from low-cost Chinese rivals but also from larger vendors like
Sweden's Ericsson and Finland's Nokia NSN unit.
The United States, where Alcatel and Ericsson are the
dominant players, has been the group's saving grace because
Chinese vendors are essentially barred over security concerns.
Yet as Alcatel-Lucent has struggled, investors have begun
hoping for consolidation in the sector.
Combes refused to say if talks had begun with Nokia, saying
only that he was focused on strengthening Alcatel-Lucent.
Cost cuts are at the centre of Combes' plan, and on Thursday
he said the company would strip out more fixed cost this year
than the initial 250-300 million euros initially planned.
Credit Suisse analyst Achal Sultania predicted that progress
on cost-cutting as well as the uptick in the business could lead
operating margin estimates to be revised upwards by 50 to 75
basis points for 2013 and 2014.
"The market may get more confidence around sustainable 5-6%
margins longer term," the analyst wrote.
Analysts from Jefferies expressed more concern.
"Historically, these kinds of cost cuts have been very
elusive for Alcatel-Lucent, a by-product of their customer
relationships and the high exit costs in the communications
equipment sector," Jefferies wrote.
The results follow weak quarters at Ericsson and NSN, which
were hit by slower spending by operators finishing superfast
mobile buildouts, known as 4G. But investors cheered a bullish
year-end forecast for NSN, sending its shares higher.
Alcatel said it would end the year on a high note with
"strong seasonal activity" in the fourth quarter.