Alcatel Lucent (ALU)

ALU 
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Alcatel-Lucent (ALU)

Q2 2011 Earnings Call

July 28, 2011 7:00 am ET

Executives

Ben Verwaayen - Chief Executive Officer and Director

Paul Tufano - Chief Financial Officer and Executive Vice President

Unknown Executive -

Analysts

Patrick Standaert - Morgan Stanley

Sebastien Sztabowicz - Kepler Capital Markets

Kai Korschelt - Deutsche Bank AG

Odon de Laporte - CA Cheuvreux

Anuj Krishan - UBS Investment Bank

Pierre Ferragu - Sanford C. Bernstein & Co., Inc.

Zahid Hussein - Citigroup Inc

Tim Boddy - Goldman Sachs Group Inc.

Kulbinder Garcha - Crédit Suisse AG

Unknown Analyst -

Eric Beaudet - Natixis S.A.

Alexander Peterc - Exane BNP Paribas

Presentation

Ben Verwaayen

Hello, good morning, good afternoon, good evening, depending on where you are. Thank you for joining us on the Q2 call. You know that we always start this activity. We're showing you this chart, this one or the next one, okay, if it works. Yes, there it is. Please, read it at your leisure. It's one of the chart that people work very hard on, and that will be a pity if you would not spend a little bit of time on it.

So where are we as a company? The message is very clear. We are on track, and it's important to put it into perspective of the journey that we have as a company to reach our targets for 2011 but not stop at 2011 but build the capabilities to do much better in 2012 and '13. So it's not just important to look to where are we in order to meet our targets. It's also very important to see whether we can make the transformation, as we have said many times to you, into a company that has innovation at the heart of what we do. And I think Q2 demonstrates that we are right on track of doing that.

First of all, the market is truly positive around us, positive in the sense that things happening quite fast and not just in one market, but around the world. If you look to the transformation, the easiest way to describe this is transformation around voice to video. That's what people do. That's what people have in their hands when they have a smartphone or a tablet. And they do incredible different things than they did 2 or 3 years ago, which means that for our audience, our customers, the transformation is not an option. It's a must do. And you can see it around the world. And during this presentation, I hope to show you that this is happening not just in one market but in all markets.

Second, I think that we have a great track record of understanding where the markets are going and what type of needs those specific markets have. So those 2 elements are important to look to our agenda from a performance agenda but at the same time, also from a product and product direction agenda. I think this quarter was a good continued financial progress. It's good on the top line, and it's good on the bottom line. If you look to the first 6 months, it's the first half of the year, 12.5% approximately growth on the top line. We did EUR 300 million better on the bottom line than last year and EUR 300 million better when you look at cash flow. So I think we are on track, and therefore, we have a -- we reiterate our full year guidance. That is not the direction we want to go. This is the direction we want to go.

So here's a very important chart. Last time, and we do listen very carefully to what you have to say to us. Last time, you said, "We have the feeling that you are too dependent on the U.S." So what I thought we'd do is, we look to where we were 12 months ago in 2010 and where we are today in 2011. And you can see that in 2010, 39% of everything we did was in the U.S. In 2011, 40% of everything we do is in the U.S. Then we look to -- okay, what's happening in Europe? In Europe, 131%. And after everything said and done, it's 30% now, and the rest is actually. So the shift is not that shift, but look underneath because that is truly the message.

In 2010, we arrived at the number against a backlog against a background, better said, where the U.S. was the only growing market for Alcatel-Lucent. It grew 17%. Today, it grew 18%. So actually, that is stable. But the massive change is taking in the other parts of the world. 12 months ago, we were down in Europe, 9%. Today, we are flat, down 1%. And if you look to Asia-Pacific, it's even more dramatic. 12 months ago, we were down 32%. Today, we were up 14%. And if you look to the rest of the world, you can see a minus 14% to plus 9%. And if you look to the plus 9%, it's interesting because the plus 9% is a composition of that one going very, very strongly in Latin America. It's a true battleground for every of the competitors in the world, and of course, down in North Africa if you would -- as you would expect.

So if you look to the markets, let's go market by market and maybe compare notes on where the market dynamics are and where we are as a company. So first of all, what you see in the U.S. market, this is at the front of the revolution because what's happening is every single participant in this revolution has, one way or the other, a massive impact on what's happening in the U.S. market. So it is the build out of networks. The response is aggressive build out of 3G and 4G. The response is, at the same time, as aggressive as the build out in the Wireless domain, optical and IP. So -- and if then people will look to what's a Europe position in that particular market, it has to do with 2 main factors. First of all, we do enjoy great relationship with the master players in the U.S. I believe that AT&T and Verizon this quarter will be more than 10%, which is a great way to underpin the journey we have made as a company. It's not one product anymore, it's multiple products. It's a deeper relationship. At the same time, in the U.S., we have many more customers than we have 12 months ago, and our portfolio is much broader than 1 or 2 products.

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