Alcatel Lucent SA
) reported net loss from continuing operations of €0.09 (11
cents) per ADS in the third quarter of 2013 on Oct 31, wider than
the Zacks Consensus Estimate of a loss of 8 cents. In the
prior-year quarter, Alcatel had reported earnings per ADS of 6
cents. The quarter's loss was primarily attributable to increased
restructuring charges of €117 million ($155 million) and a
financial charge of €218 million ($289 million).
Although, the company incurred net loss during the quarter,
the overall results were encouraging as revenues increased driven
by growth in IP and LTE technology. In addition, gross margin
also improved due to a favorable product mix and higher volumes.
The company's Performance Program is on target and achieving the
desired results. Driven by these factors, the shares price surged
from $3.83 on Oct 31 to $4.11 on Nov 5, 2013.
In the third quarter of 2013, Alcatel posted revenues of €3.7
billion ($4.9 billion), up 7.0% year over year and 3.1%
sequentially. Revenues during the quarter were driven by a strong
growth in IP revenues, Wireless and fixed networks, partially
offset by the company's outdated technologies.
Revenues by Geography
Geographically, North America posted a 13.6% improvement year
over year. However, Alcatel witnessed mixed trends in Asia
Pacific, which resulted in a decline of 10.6% year over year.
Strong performance and financial stability in China partially
offset the continued low volume of activity in the Asia Pacific
region. However, Europe reported a 3.1% increase in revenues,
while revenues from the Rest of World were down 15.3% as
continued traction in Brazil and growth in the Middle East and
Africa were more than offset by poor results in Central and Latin
Revenues for the
segment increased 0.9% year on year, but declined 4.8%
sequentially to €1.5 billion ($2.0 billion). Two of the three
sub-segments reported year-over-year decline in revenues.
Revenues for the IP Routing division were €580 million ($768
million), increasing 7.0% from the year-ago quarter and 14.6% at
constant currency. The increase was driven by strength in the
APAC and EMEA regions, where the latter grew almost 50% compared
to the year-ago quarter. Demand for ultra-broadband access
technologies, such as LTE, also continued to drive opportunities
within IP routing.
Revenues in the IP Transport division, which includes
terrestrial and submarine optics, were €544 million ($720
million). The segment witnessed a 1.8% decline year-over-year,
but grew 1.8% at constant currency in the quarter. Within IP
Transport, growth in the WDM portfolio accelerated, reporting a
10% increase in the quarter at constant rate, led by both the
Americas and APAC regions.
Revenues in the IP Platforms division declined 3.6% to €372
million ($493), but increased 1.3% at constant currency compared
with the year-ago quarter. During the quarter, the company
reported good traction across a number of activities within the
Platforms division, particularly Subscriber Data Management
businesses. This was driven by the introduction of LTE services;
as well as continued momentum in Motive Customer Experience
Solutions. This was offset by the de-scoping of certain
businesses within this division, consistent with the Shift
Revenue in the
division reported 3.7% year-over-year increase in revenues and
7.4% sequential increase to €2.0 billion ($2.6 billion). Three of
the four sub-segments reported revenue growth during the
Revenues for the Wireless division were €1.2 billion ($1.5
billion), an increase of 12.6% from the year-ago quarter due to
strong growth in LTE, which in turn was driven by ongoing
investments in the U.S. along with positive trends in both the
APAC and EMEA regions.
Revenues for the Fixed Networks division were €541 million
($717 million), an increase of 0.7% from the year-ago quarter and
5.8% at constant currency exchange rate. During the quarter, the
company reported strong growth in copper and fiber based ultra
broadband solutions, mainly in North America and EMEA region.
Revenues from the Managed Services division contracted 28.2%
from the year-ago quarter to €186 million ($246 million) as
Revenues in the Licensing division grew 21.7% year over year
to €28 million ($37.1 million), driven by the company's
initiative to use a more offensive approach to monetize its
During the third quarter of 2013, revenues for
were €228 million ($302 million), reflecting a decrease of 3.4%
year over year and a 1.3% increase sequentially. At constant
currency exchange rates, other revenues decreased 0.8%
year-over-year and decreased 0.4% sequentially.
Gross margin for the third quarter was 32.6%, up approximately
480 basis points (bps) from 27.6% in the year-ago quarter and
increased 70 bps sequentially. The sequential increase in gross
margin was driven by higher volumes, favorable product mix and
lower fixed operational costs.
Balance Sheet & Cash Flows
Exiting the quarter, Alcatel had a net debt of €1.0 billion
($1.3 billion) versus €794 million as of Jun 30, 2013. The
sequential increase in net debt is attributable to higher working
capital expenses and restructuring cash outflows.
Free cash flow at the end of the quarter was comparatively
better at negative €218 million ($288 million) compared with
negative €248 million in the previous-year quarter and negative
€366 million in the previous quarter.
In Jul 2012, the company announced a Performance Program
primarily targeted at additional cost savings totaling €1.25
billion by the end of 2013. At the end of the third quarter 2013,
Alcatel achieved €84 million ($1.1 billion) in fixed cost saving.
Further, management is continuously repositioning its IP
Networking and Ultra-Broadband Access to derive the desired
Issuance of New Capital
On Nov 4, Alcatel Lucent announced that it intends to raise
approximately $2 billion by issuing new capital and offering
high-yield bonds. These are done to primarily repay debt, fund
its restructuring activities and strengthen its equity.
According to the announcement, the company plans to raise €955
million ($1.3 billion) from its shareholders by issuing
preferential subscription rights to the holders of extra ordinary
shares. These shareholders will get one Right for every Existing
Ordinary Shares held on the record date of Nov 18, 2013.
The company plans to commence high-yield bonds offering with
an aggregate principal amount of $750 million and also plans to
execute the new syndicated revolving credit facility of €500
Alcatel currently has a Zacks Rank #3 (Hold). Other companies
in the industry worth considering at the moment are
Vocera Communications, Inc
). All three carry a Zacks Rank #1 (Strong Buy).
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