Alcatel-Lucent ( ALU ) reported net loss
from continuing operations of 80 cents per ADS in the fourth
quarter of 2012, worse than the Zacks Consensus Estimate of
earnings of 1 cent per ADS. In the prior-year quarter, Alcatel had
reported earnings per ADS of 38 cents. Earnings in the reported
quarter include an after-tax impact from Purchase price allocation
However, excluding the negative impact of the Purchase price
allocation entries, loss per ADS came in at 70 cents compared to
earnings of 39 cents per ADS in the prior-year quarter.
In the fourth quarter of 2012, Alcatel posted revenues of €4.1
billion ($5.3 billion), down 1.3% year over year but up 13.8%
sequentially. The company witnessed marginal improvements in the
segment businesses as they reported lower declines during the
Geographically, North America posted 10% growth. However,
Alcatel witnessed mixed trends in Asia Pacific, which resulted in a
low double-digit decline. Further, strong performance in Japan was
offset by continued low activity in China. Further, cautious
spending in Europe, resulted in decline in revenues for the region
at low double-digit rate.
Nevertheless, revenues from the Rest of World was comparably
better as continued traction in Brazil and Middle East and Africa
led to growth, after several quarters of decline.
Revenues for the Network segment declined 2.2%
to €2.4 billion ($3.1 billion) but increased 10.4% sequentially.
Four of the five sub-segments reported year-over-year increase in
Revenues in the IP division increased a record 26.4% year over
year, driven by continuous progression in the Americas and
breakthroughs in Japan and China, which resulted in revenue growth
in the Asia Pacific region for the quarter.
The Wireless division reported 2.2% increase after four
consecutive quarters of double-digit decline. The Wireline business
reported first full year of growth since the merger of Alcatel and
Lucent, primarily driven by fiber roll-outs for nationwide
Revenue in the High Leverage Networks grew 7% year over year.
However, the Optics division reported a decline of 22.0% year
Revenues at the S3 segment (Software, Services
and Solutions) grew 5.5% year over year to €1.4 billion ($1.8
billion) and 20.1% sequentially. During the quarter, the division's
Network applications along with its Strategic Industries Services
reported strong revenues, which were partially offset by a marginal
decline in the Services business segment. At constant currency, S3
revenues increased 3.0% year over year and 22.5% sequentially.
Revenues in the Enterprise business declined
3.7% year over year but increased 10.1% sequentially to €207
million ($266 million) in the fourth quarter 2012. At
constant currency exchange rates, revenues at the Enterprise
business segment declined 4.7% year over year but increased 10.1%
The year-over-year decline was attributable to stagnant orders.
Further, on a geographical basis, the company witnessed declines in
Europe that was partially offset by growth in Asia Pacific.
Income & Expenses
Gross margin for the fourth quarter declined approximately 40
basis points (bps) to 30.4% year over year while it expanded 25 bps
from 27.9% in the previous quarter. The year-over-year decline was
attributable to a lower mix, driven by the decline in CDMA
revenues, unfavorable mix in Services and overall lower volumes.
The sequential increase in gross margin mainly resulted from higher
volumes and product and customer mix, especially in the S3
Operating expenses during the quarter decreased 1.7% year over
year and 3.7% sequentially (constant currency) attributable to the
cost reduction plan implemented by Alcatel, primarily focusing on
SG&A expenses, which declined 10.1% year over year on constant
currency). On a sequential basis, operating expenses increased
marginally by 1.5% (constant currency), driven by a 2.3% sequential
increase in R&D expense.
Balance Sheet & Cash Flows
Exiting the quarter, Alcatel had a net debt of €126 million
($162 million) versus €84 million as of Sep 30, 2012. The
sequential increase in net cash of €210 million ($270 million)
primarily reflects positive operating cash flow of €702 million
($902 million). The positive cash flow is primarily attributable to
strong positive contribution from the working capital requirements
of €259 million ($333 million).
Alcatel has been progressing well on its Performance Program
that it had announced in Jul 2012. Further, the company is
progressing well on its cost control initiatives and has already
generated 35% savings or €500 million ($643 million) by the end of
Moving forward, Alcatel is planning employee retrenchment and
exiting of unprofitable partnerships across the globe. According to
the company, just 25% of its outsourcing contracts are profitable,
which is a pressure on its margins. The company is planning to exit
these contracts by the end of fiscal 2013.
Alcatel currently carries a Zacks Rank #5 (Strong Sell) while
its peers such as Siemens AG ( SI ), LM
Ericsson Telephone Company ( ERIC ) and
Juniper Networks ( JNPR ) all carry a
Zacks Rank #2 (Buy).ALCATEL ADS (ALU): Free Stock Analysis ReportERICSSON LM ADR (ERIC): Free Stock Analysis
ReportJUNIPER NETWRKS (JNPR): Free Stock Analysis
ReportSIEMENS AG-ADR (SI): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment