) fell by more than 4% on May 9 after it reported adjusted net loss
from continuing operations of 4 cents per American Depositary Share
(ADS) in the first quarter of 2014. However, the reported loss was
narrower than the Zacks Consensus Estimate of a loss of 8 cents. In
the prior-year quarter, Alcatel had reported a loss per ADS of 19
The ongoing restructuring of the business, as per the company's
'The Shift Plan,' had an adverse impact on the bottom line.
However, growth in IP and LTE technologies due to key contract wins
and market share gains partially offset the loss. Also, the gross
margin improved due to a favorable product mix and higher
In the first quarter of 2014, Alcatel posted revenues of €2,963
million ($4,061 million), up 0.3% year over year but down 20.7%
sequentially on a constant currency basis. Revenues fell short of
the Zacks Consensus Estimate of $4,354 million.
Revenues by Geography
Geographically, Alcatel reported strong growth in Asia-Pacific,
with revenues increasing 19% year over year, driven by rapid
network roll-outs in China and increased activity in Japan.
However, North America reported a 1.0% decline in revenues, while
revenues from Europe and the Rest of World were down 2.5% and 7.0%
Revenues for the
segment increased 6.9% year over year to €1,352 million ($1852.9
million). Two of the three sub-segments reported year-over-year
increase in revenues.
Revenues for the IP Routing division were €549 million ($752.4
million), up 16.4% from the year-ago quarter at constant currency.
The double-digit increase in the sub-segment was driven by strong
growth in the IP networks industry.
Revenues in the IP Transport division, which includes
terrestrial and submarine optics, were €454 million ($622.20
million), reflecting an increase of 8.6% year over year at constant
exchange rates due to improvement in the terrestrial optical
Revenues in the IP Platforms division declined 6.9% year over
year to €349 million ($478.30 million). The decline was due to
sluggishness in legacy platforms added to the negative impact of
last year's portfolio rationalization, which completely offset the
ongoing growth in the major platforms including IMS voice over LTE
(VoLTE), Subscriber Data Management (SDM) and Customer
Revenue in the
division declined 4.2% year over year during the quarter to €1,572
million ($2,154.4 million). Two of the four sub-segments, however,
reported revenue growth.
Revenues for the Wireless division were €999 million ($1,369.1
million), an increase of 2.3% from the year-ago quarter on a
constant currency basis. This was driven by strong growth in LTE
across the major regions especially in the U.S. However, the
continued declines in 2G and 3G technologies were a partial
Revenues for the Fixed Access division increased 2.8% year over
year on a constant currency basis to €460 million ($630.4 million)
in the quarter. The copper and fiber businesses continued to
benefit from network upgrades to ultra-broadband technologies
leading to a strong year-over-year growth rate in the quarter. The
positive trends in copper and fiber businesses in the U.S., Europe
and Asia-Pacific excluding China continued, while legacy
technologies reported declines.
Revenues from the Managed Services division were €99 million
($135.7 million), reflecting a 50.5% decline year over year at
constant exchange rate, due to restructuring efforts in this
In the first quarter of 2014, the company recorded €14 million
($19.19 million) of Licensing revenues.
During the quarter, revenues for its
segment were €40 million ($54.82 million), reflecting a decrease of
12% year over year at constant currency exchange rates.
Gross margin for the quarter was 32.3%, up from 28.2% in the
prior-year quarter. The year-over-year increase was driven by
favorable product mix and improved profitability in the
Exiting the quarter, free cash flow excluding restructuring
charges was a negative €288 million ($394.70 million), narrower
than the prior-year's figure of a negative €445 million ($609.86
In the quarter, the company closed the divesture of its LGS
business. Also, management received a binding offer from China
Huaxin for about 85% stake in its Alcatel-Lucent Enterprise unit.
Following the receipt of necessary approvals, the transaction is
expected to be closed in the third quarter of 2014.
The Shift Plan
The company is benefiting from its ongoing repositioning as per
'The Shift Plan' that was formulated in 2013 to transform itself
from being a telecom generalist to a specialist in IP networking
and Ulltra-Broadband services. The company now plans to shift focus
from the older technologies (2G and 3G wireless equipment) to high
potential newer ones like Internet routing. Under this plan,
management intends to trim costs by approximately 15% by
In the quarter the company achieved fixed cost savings of about
€143 million ($196.0 million). As such, the consolidated fixed cost
savings under the plan stands at €478 million ($655.1 million).
Presently, Alcatel-Lucent has a Zacks Rank #3 (Hold). Other
stocks in the industry worth considering at the moment include
Premiere Global Services, Inc.
SeaChange International Inc.
), each carrying a Zacks Rank #2 (Buy).
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