Price pressures, merger costs hit Alcatel-Lucent
PARIS (Reuters) - Telecoms equipment maker Alcatel-Lucent ALU.PA produced a bigger-than-expected quarterly loss on Tuesday as merger costs and pricing pressures took their toll, sending its shares down as much as 9 percent.
The group, created in December by the takeover of U.S.-based Lucent by Alcatel of France, has been struggling to win the confidence of customers spooked by uncertainty over product integration and future technology choices.
Problems surrounding the complex transantlantic merger emerged as early as January, when the group issued a profit warning, and resurfaced again in April with a sales warning.
"In the early days of our merger, we have had some attacks on our customer base," said Alcatel-Lucent Chief Executive Patricia Russo in a conference call.
"But we have not yet seen the all the benefits of the product rationalization work which affects the margins as well."
The results and lack of detailed outlook for the current year wiped 2 billion euros off the company's market value. The stock, down 8.65 percent at 8.76 euros at 1340 GMT, has underperformed the technology index .SX8P by more than 24 percent so far this year.
Alcatel-Lucent is the market leader for fixed-line network equipment and associated services, but lags Ericsson (ERICb.ST) in wireless gear.
Cut-throat competition from Ericsson as well as Nokia Siemens Networks NSN.UL, (NOK1V.HE) (SIEGn.DE) and Asian rivals has forced Alcatel-Lucent to sell wireless network products at relatively low prices, putting pressure on margins.
"It looks as if some of the savings that are made from cost-cutting are being absorbed by price pressures (particularly in the mobile equipment sector) which are worse than expected and hurting margins," said Richard Windsor, analyst at Nomura.
Alcatel-Lucent's wireless sales fell 11 percent in the second quarter while fixed-line revenues rose 3 percent.
Paris broker CM-CIC Securities said the group's second-quarter gross margin of 33.4 percent undershot its forecast of 38.2 percent and a market consensus of 36.9 percent.
The group's gross margin has deteriorated in past quarters from 34 percent in the first three months of the year and 38 percent in the second quarter last year.
"The unknown element on gross margins is what happens to prices in the industry," Russo said.
"We don't believe it (the gross margin) is indicative of the business going forward," she added.
WIDER LOSS Continued...
