September 9, 2009 / 6:48 AM / 10 years ago

Alcatel says M&A not only way for telecom sector

* Says telecom gear firms can make profit without mergers

* Sees certain degree of optimism among customers

* Some pockets of growth, but outlook still tough

* Sticks to market fall outlook of 8-12 pct this year

By Leila Abboud and Marie Mawad

PARIS, Sept 8 (Reuters) - Telecom equipment makers can make profits without consolidation, focusing on new technologies, services and cost cuts, the head of Alcatel-Lucent’s ALUA.PA European business said in an interview with Reuters on Tuesday.

Adolfo Hernandez, who heads Alcatel-Lucent’s operations in Europe, the Middle East, and Africa, acknowledged that the outlook is tough and competition intense in the telecommunications gear business.

“That doesn’t mean that the only way out, or the only future that awaits us, is a consolidated future,” said Hernandez. “We have to stop just thinking about consolidating and consolidating.”

Instead, companies like Alcatel-Lucent can succeed by ratcheting down internal costs, by pioneering new technologies that simplify networks and make them more profitable, and by offering services, not just equipment, to telecom operators, Hernandez said.

Only market leader Ericsson (ERICb.ST) can boast of strong profits, while Alcatel-Lucent has never made a profit and market No. 2 Nokia Siemens Networks [NSN.UL] is struggling to reach profitability.

Alcatel-Lucent has said it aims to turn profitable next year.

Hernandez’s comments come as some investors and executives at rival companies have predicted further consolidation in the telecom gear business. Alcatel-Lucent’s shares jumped late in August on market talk that a Chinese rival might be interested in bidding for the company. Incoming Nokia Siemens Networks Chief Executive Rajeev Suri last week said there was room for only three global players. Today there are five: Sweden’s Ericsson, China’s Huawei Technologies [HWT.UL] and ZTE (0763.HK), France’s Alcatel-Lucent, and Nokia Siemens, owned by Finland’s Nokia NOK1V.HE and Germany’s Siemens AG (SIEGn.DE).

Hernandez declined to comment on how many players he thought the telecom gear industry could sustain.

Alcatel-Lucent has forecast that the telecom gear market would shrink by 8 to 12 percent this year, and Hernandez said that outlook remains unchanged despite some positive signs.

“There is certain degree of realistic optimism among our customers,” said Hernandez, adding that the market for certain technologies and regions like the Middle East and Africa is growing.

For stories on the struggling telecom gear sector, click on [nL2534735]

(Editing by Tarmo Virki and Gerald E. McCormick) Keywords: ALCATEL LUCENT/

((leila.abboud@thomsonreuters.com; +33 1 49 49 51 82; Reuters Messaging: leila.abboud.reuters.com@reuters.net))

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