July 30, 2015 / 6:06 AM / 5 years ago

UPDATE 1-Alcatel-Lucent says Nokia deal on track after mixed Q2 results

* Q2 sales slightly miss consensus, adj opg profit comes in ahead

* Nokia deal on track, closing may come earlier than predicted

* Sale of majority stake in submarine unit still in the works (Adds CFO quotes, shares, deal background)

By Leila Abboud

PARIS, July 30 (Reuters) - Telecom network equipment maker Alcatel-Lucent posted second-quarter sales slightly lower than expectations and announced the September departure of its chief executive ahead of being bought by rival Nokia .

The Franco-American company, which Nokia will pay 15.6 billion euro for in a deal set to close by mid-2016, also improved its margins to deliver better-than-expected operating profit thanks to cost cuts, and generated more cash than it consumed in the quarter, the first time it has done so in a second quarter since 2006.

Getting to free cash flow positive remains the key goal of Alcatel-Lucent in the turnaround plan launched by Chief Executive Michel Combes in April 2013. He will step aside on Sept. 1 to be replaced by Chairman Philippe Camus until the Nokia deal closes.

“We are fully mobilised to achieving the free cash flow goal and have created an organisation that is much more resilient than in the past,” said Chief Financial Officer Jean Raby on a conference call.

“The Nokia deal is on track to be completed in the early part of the time line we gave, if not earlier.”

Separately on Thursday, Nokia posted a surprise rise in second-quarter profits, helped by high-margin software sales and fewer low-priced contracts.

Alcatel’s second-quarter revenue rose 5 percent to 3.45 billion euros helped by double-digit growth in so-called IP products that help telecom operators handle heavy video data traffic and direct Internet.

Adjusted operating profit rose 28 percent to 175 million euro for a better-than-expected margin of 5.1 percent.

The company posted a net loss of 54 million euro, narrower than the 298 million euro loss of a year earlier.

Analysts had been expecting second-quarter sales of 3.47 billion euros and net income of 52.4 million euros, according to Thomson Reuters I/B/E/S data.

The gross margin was 34.8 percent, compared with expectations of 33.1 percent.

Announced in mid-April, Nokia’s acquisition of Alcatel-Lucent aims to position the company to better compete with market leader Ericsson of Sweden and low-cost Chinese powerhouse Huawei by forging a strong number two in mobile with a more complete product line.

The companies have secured antitrust approvals in Europe Union, Brazil, Russia and the United States, but are still waiting on a decision from the Chinese authorities.

Alcatel-Lucent’s Raby said the group still aimed to sell a majority stake in its undersea cable unit, which analysts value at up to $1 billion, before the Nokia deal closed.

Since the deal was announced in mid-April, Alcatel’s shares have dropped 27 percent while Nokia’s are down 20 percent, reflecting investors’ concerns about weakness in the telecom gear market overall and the marriage.

Ericsson’s are down 20 percent in the same period.

Reporting by Leila Abboud; Editing by Andrew Callus

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