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UPDATE 2-Alcatel warns on profit as telecom firms cut back
July 17, 2012 / 6:11 AM / 5 years ago

UPDATE 2-Alcatel warns on profit as telecom firms cut back

* No longer expects to improve full-year margin

* Expects Q2 loss, despite cost savings

* Shares down more than 15 pct

* Alcatel woes drag down shares of Nokia, Ericsson (Adds analyst comment, details, background, shares)

By Leila Abboud

PARIS, July 17 (Reuters) - Telecom equipment maker Alcatel-Lucent said it would miss its 2012 profit target and post a loss in the second quarter as telecom operators across the world cut spending amid an uncertain economic outlook.

Shares in the company dropped over 15 percent in early Tuesday trading on disappointment at the further delay to chief executive Ben Verwaayen’s drive to turn the business around.

Alcatel-Lucent, like rivals Ericsson and Nokia-Siemens Networks, has been hit hard by cutbacks in infrastructure spending by telecoms operators, particularly in austerity-hit Europe.

It is also suffering from a smaller presence in mobile than Ericsson or Chinese rival Huawei, and from an over-reliance on the very profitable U.S. market as it tries to boost margins.

Verwaayen has slashed costs and made Alcatel-Lucent a leader in fourth generation mobile and so-called IP technology since taking over in September 2008 but it hasn’t been enough to put the company on a sustainably profitable course.

The group said it would post an adjusted operating loss of 40 million euros ($49 million) in the three months ended June 30, despite sales above 3.5 billion euros.

UBS analyst Gareth Jenkins said in a note that profitability was hurt by a higher proportion of sales from lower margin fixed network products in markets such as China, while sales of higher margin U.S. mobile gear slowed.

The second-quarter loss also came despite 100 million euros in cost savings compared with the year-earlier period.

Alcatel-Lucent said the second half of 2012 would be “better than the first half” in keeping with the industry’s normal seasonal pattern.

The group had hoped to improve profit margins from the 3.9 percent seen last year. It will issue new full-year guidance when it announces second-quarter earnings on July 26.

Deutsche Bank analysts said they expected the full year operating margin to end up at 3 percent, while CA Cheuvreux forecast 2.5 percent.

Sweden’s Ericsson is due to publish results on Wednesday, followed by Finland’s Nokia on Thursday. Their shares were also down in the wake of Alcatel-Lucent’s warning.

$1=0.8170 euros Reporting by Leila Abboud and Laurence Frost; Editing by Mike Nesbit and Mark Potter

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