Alcatel Lucent (ALU)

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Alcatel-Lucent (ALU)

Q4 2009 Earnings Call

February 11, 2010 7:00 am ET


Ben Verwaayen - Managing Director (CEO), Member of the Management Committee, Director

Paul J. Tufano - Chief Financial Officer, Member of the Management Committee

Peter - VP, IR


John Stanovich (ph) - KPro Capital Markets (ph)

Adon Laport (ph) - Cheuvreux

Andrew Griffin - Bank of America/Merrill Lynch

Sharif Bakra (ph) - Citi

Unidentified Analyst - Reuters

Amit Kristnen (ph) - UBS

Vas Amadae (ph) - Modo (ph)

Sam Kovinda (ph) - Credit Suisse

Unidentified Analyst

Alexander Peterc - Exane BNP Paribas

Tim Boddy - Goldman Sachs

Simon Leopold - Morgan Keegan


Ben Verwaayen

Thank you very much for joining us. Whether you’re here or on the webcast, thank you for joining us I really appreciate it. Today we’re going to talk about our Q4 results and we’re going to talk about the full year.

So first I’ll introduce you to one of your favorite slides, I am pretty sure that you will give full attention to that, because our lawyers are working very hard on that every single time and find the difference is probably what I would like to challenge you. But we’re not going to do it right now.

So, one of the most important things that a company has to offer is credibility and everybody who’s ever been on a board is looking to that and saying, make sure that you’re credible. Make sure that you deliver what you promise, because there is nothing more important for a company than to be consistent in what you say you’re going to do and what you actually do, and I think we have done that in 2009.

So let’s go back 12 months where we were, what were the concerns of the market? What was the market saying to us? Well the market was saying to us, basically, three things. Are you credible for your customers? Are you addressing really the issues that your customers worry about? And are you then capable of delivering that and benefiting from that?

The second thing the market was saying was, look to your balance sheet. Make sure that you deliver a stronger balance sheet at the end of the year than at the beginning of the year, because that’s what the market will want to know and that’s what your customers want to know.

And a third thing the market said is, are you able to transform yourself? Are you taking the hard decisions and executing on them? And my message to you today is, we’ve done all of that.

Yesterday, was an important day for us, we won the AT&T account. It’s not just the business as such, but the nature of the business that is truly important to understand. Because to be honest to you, 18 months ago it wasn’t a foregone conclusion that we would be able from a technical and a strategic point of view to deliver that type of capability of transformation.

It is something that is much more than the next box. It’s the ability to include different approach and applications and business model, to deliver. And it opens a whole new world of capabilities that we are able and capable of delivering, which wasn’t the case 18 months ago.

So on that basis and on the three points that I just gave to you, it’s important to look to the results that we have presented to you today. First of all, we have delivered the operating income, actually this quarter was good, because this quarter was a profitable quarter, both on the operating level as on the net level. It’s important to note that.

The second thing was we have to do work, cost management, and we promised $750 million, we delivered $950 million, that’s a 28% increase and it’s important because it is across the business. 40% of that is in COGS and I salute the team that really went very hard and went after that step-by-step to deliver that.

35% was in SG&A and you know that SG&A is one of those elements in costs that keep growing whatever you do, so you need good true cost management to get it done and the team did a great job. And 25% on R&D, most of that is in what I would say is making the hard choices and sticking to them. Making sure that you choose to let your Euros, Dollars, Yens, whatever, work in that area where you can make a difference for your customers.

So if you looked to the cost reduction on one side in the R&D field you have to look to the other side of the equation and that is, where do we build winning platforms with the same vigor as you go and reduce the exposure that you have in your organization? Maybe because you have a multiple of platforms that you want to eliminate, or look to what is more a harvesting part of the market than a (inaudible) part of the market.

And I think with taking those hard decisions, not only taking the decisions we’ve executed and that’s why we have with this type of cost savings, and now you look to the Q4 exit run-rate, a tremendous, good, starting momentum for 2010. I think we have demonstrated our ability to generate cash, $635 million operating cash for the quarter, translating it to $173 million free cash flow is a tremendous achievement. It is something that we hoped to aspire and we did. We did execute it, which is something a little bit remote from aspiration.

Then we strengthened our balance sheet, we have today $5.6 billion in marketable securities in cash, which is a billion better than where we were a year ago and in the meantime we paid off some debt. So if you take that equation it is clear that we have said yes to the market demand that said, look to your balance sheet and make it better.

The last point I want to say is relevance to our customers, it is probably the most important thing. The world is changing and if we have called a market down 8%-12% this year and fortunately we were right. And we called the market for next year up 0%-5%, and I’m convinced that we’re right as well.

And what is the difference between the two? Not always, of course, 0%-5% on a lower platform because of the 8%-12% which turned out to be, in our case, 12 and a little bit. But the most important thing is that the drive to change, and I will come to that in a minute, are here to stay because they are fundamental changes in the business models of our customs.

To be relevant there means that you have to look to, not just how much is your revenue, but more important where is your revenue? Where does it hit the customer? And in what part of the model are you? And it is clear that we predict that in 2010 the same selectivity in the old technology will take place as it was in 2009, nothing will change there. We will not see a very sudden build out of footprint waiting for customers to happen as we’ve seen in 2006 and 2007, it will be selective. But where it won’t be selective is where they can make a difference. So the question is do you have the portfolio to address those parts of the market where you can make a difference?

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