Alcatel Lucent (ALU)

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Alcatel-Lucent (ALU)

Q4 2010 Earnings Conference Call

February 10, 2011 07:00 AM ET


Ben Verwaayen – CEO

Paul Tufano – EVP and CFO

Peter Benedict – VP, IR


Sebastien Sztabowicz – Kepler

Keith Mallinson – WiseHarbor

Tim Boddy – Goldman Sachs

Vincent Maulay – Oddo Securities

Andrew Griffin – Bank of America/Merrill Lynch

Michael Howard – Infonetics Research

Alexander Peterc – Exane BNP Paribas

Richard Kramer – Arete Research

Eric Beaudet – Natixis Securities

Kai Korschelt – Deutsche Bank

Zahid Hussein – Citigroup

Odon de Laporte – Cheuvreux

Simon Leopold – Morgan Keegan

Gareth Jenkins – UBS


Ben Verwaayen

We want to be strict on time, so we have 10 seconds to go. So good morning, good afternoon, good evening depending where you are. Thank you for joining us on the Q4 results call.

We’ll have Paul joining me in a second on the details of the numbers but let me start by giving you the chance of looking at this wonderful chart, read it at your leisure, people work very hard on it and it is wonderful prose that is been conducted here. And so we are happy. We are absolutely happy with the results as we can produce them today for you. And I think that it’s crystal clear that we have a momentum, we have a clear momentum so to say in the markets, and we have a clear momentum with the company. And I think the Q4 performance builds on what happened in the quarters before. There is a logic in it. And what I am trying to do here today is to tell you the story of where we are on our journey. It is a three year journey and we’re at the end of the second year.

It is a three year, but it is one with clear momentum and I’m very happy to have the ability to explain to you how the market works and how we work into the market and where we are. It has been a remarkable week for Alcatel-Lucent. Only a week ago, we were able to communicate with the market the progress we made on Green Touch, the initiative that we have with other players in the industry to dramatically reduce the energy footprint of networks in the view in light of expansion of networks. We’re going to add a billion people or so in the coming four or five years, and clearly the energy consumption that we have today is unsustainable. It’s unsustainable for operators if they look just to the bottom line, and it’s unsustainable if you want to go to areas, the rural areas that we can’t reach today.

And a week today, (inaudible) was running Green Touch was able to give a very clear view of where we are with the addition of many, many new partners from the industry, competitors of ours, customers, universities and they are something growing there. And it is a method of going to innovation. It’s a matter to address innovation. It’s not everybody under own silo. It’s doing it together. And that exactly was the same message when we produced on Monday, I think an astonishing new model going forward in mobile networks where we talked about Light Radio. Again not something we did an isolation, it’s based on the innovation of Bell Labs but it reaches out immediately in a kind of co-creation to partners like Freescale and HP and to customers, to co-create with us, something that is needed in the market because the market is developing so rapidly.

So there is something in the market and something in the company that comes together and that produces results. Results that are hopefully continuing on a financial edge as well. So what’s happening in the market? Well we know about the explosion in traffic, just to get a feel we expect that at the end of 2012, we will have more than a 0.5 billion smartphones in the world, more than 0.5 billion at the end of 2012, which is only what is it, 23 months away. So something is happening there, I mean the fact that two billion views per day on YouTube, something is happening there. The way that people integrate communications in their life is very different, and it is moving very, very fast. It is not just looking at stuff, it’s communicating differently, it’s becoming a lifestyle and it’s entering not just the private life of people also the way they work together with others. And somewhat of that is enormous amount of traffic going around of a very different nature than what we have seen only a few years ago. And that has an impact on how to deal with the business models for our customers. Second, it’s clear that we go rural. The world has chosen also to go rural with broadband. If you look to the numbers that are added in Q4 of wireless new customers in two markets, let’s say China and India, 60 million, one quarter in China, 30 million in India. So something is happening also in the way that the market is expanding. And if you look the plans that not just President Obama said when he had in the state of US but if you look to Australia, if you look to Europe, the aspiration to go out and to connect to the world is tremendous and it has an implication where the market is going. And how are we doing?

Well we set out and we shared that with you at the end of 2008 and in the beginning of 2009, a strategy around what we call High Level Network which is basically in convergence of network, give the ability to customers to choose between screens. A big screen, a small screen or a very small screen you can randomly go through it because the network is converging. And we built products around it. If you are an engineer in Alcatel-Lucent and you cannot justify your investment that it has a link in what we do in what we call HLN or application enablement, you’re in trouble. The likelihood that Philippe Keryer will say yes to your investment goes down rapidly, if it doesn’t fit in there.

And you can see that there is traction in the market as well. We grew in quarter 72% year-over-year, the relevant of that portfolio. And it is now accounting for almost 46% of everything we do. That’s cool, 72%. The good news Paul will tell you is that the other part also grew 10%. But I think it is important that we made bets as an organization. We translate our vision into reality and the markets set resounding yes to what we had to offer. So this works, yes. Here you see some of the wins in the quarter, you can see it at your leisure and it’s not important to look to each and every of those boxes. But important is that you can see this HLN strategy in the middle, and that each of those strategies is occupied by customers who can make a difference by the converge nature of what we have to offer. Our optical is not just optical, it’s optical than IP. Our IP is not just IP, its IP throughout.

Our wireless is working together with our IP. So the logic in the portfolio, the click and play so to say from a logical point of view, is proven a massive positive where we are as an organization. We grew in this quarter all our segments of network. We grew every single of our regions. So let’s go through the trend here. The trend is important because the trend is a trend that you will see in every slide that I am going to show you is a trend upwards. So here is the IP story. And we have taken constant currency because Frank tells me that if you want to have a trend you need to go in constant currency. I love to have the actual currency because the number is higher, but he tells me okay, we’ll take the constant currency. Fine, since the numbers are so great whatever number you take its fine. So it’s 49%.

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