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Alcatel-Lucent (ALU)

Q1 2011 Earnings Call

May 06, 2011 7:00 am ET


Ben Verwaayen - Chief Executive Officer and Director

Paul Tufano - Chief Financial Officer and Executive Vice President

Unknown Executive -

Philippe Keryer - Member of Technology Committee and President of Networks Segments


Patrick Standaert - Morgan Stanley

Sebastien Sztabowicz - Kepler Capital Markets

Didier Scemama - RBS Research

Kai Korschelt - Deutsche Bank AG

Achtal Sultania

Odon de Laporte - CA Cheuvreux

Sandeep Deshpande - JP Morgan Chase & Co

Stuart Jeffrey - Nomura Securities Co. Ltd.

Andrew Griffin - BofA Merrill Lynch

Zahid Hussein - Citigroup Inc

Tim Boddy - Goldman Sachs Group Inc.

Unknown Analyst -

Eric Beaudet - Natixis S.A.

Alexander Peterc - Exane BNP Paribas


Ben Verwaayen

So good afternoon, good morning, good evening depending on where you are. Welcome to the Q1 call, and thanks for coming and joining us on the web. You know that we always -- if you had the pleasure of reading this -- the Safe Harbor statement, I'm not going to do it here now, but I'm pretty sure that you will take it and give it your appropriate attention that it deserves.

This has been a very, very good quarter for us. It has been a good quarter because the momentum that we had in the later part of 2010 continued in 2011, and you can see that it is not just the company with momentum, but it's also a market with momentum, and that's an important element to consider. Of course, we have made choices, and the choices are paying off. We've made choices that make end-to-end sense because they addressed the issues that the market is really, at this moment in time, looking into and say, yes, this is what's going to make the difference.

But it is embedded in a market trend, and there are 3 elements that I'd like to stress here. First one, we talked about it many, many times: The explosion in data and video. It's there. It's there to stay, and it drives markets to develop network transformation end-to-end. First in the U.S. China's coming. Europe is coming. You can see that this is a trend that's here to stay, driven by the transformation of the nature of the traffic and the related volume with that.

The second trend is relatively new, and that's a trend that regulators and policymakers not just look anymore to what's the benefit of a consumer, but they also need to look and are increasingly looking into the competitive nature of their infrastructure in the digital knowledge economy, So from countries like Indonesia and Brazil and Mexico and Australia, just to name a few. Many, many initiatives that are taking place right now to say, oh, what do we need to do in order to prepare our markets, our capabilities to compete? Now that has a massive impact on, for example, fiber rollout and other things.

And the third element in the momentum that we have is our ability to translate what is good for the market, what our new product portfolio is all about and make that into a top line and bottom line performance that's increased because of our operation momentum.

So what I'll try to demonstrate to you today is where the relevance of our portfolio is increasing because of the choices that we have made that we're able to translate that increasingly in a positive number for our shareholders, for our customers and for our employees.

So first, networks. We grew 25% in quarter. That is relatively a good number, 25%. And we grew it with a portfolio that is increasingly new stuff where IP is the name of the game end-to-end. Where what we do in one part of the organization is immediately taking an effect into the other part of the organization. The portfolio that we are building is no longer a stove pipe [indiscernible] portfolio. It's horizontal. And the relevance from one end gives benefits on the other end. And that's important to understand because it does 2 things: First of all, it gives us the capability to bring improvements end-to-end to our customers. And second, it speed up innovation throughout our portfolio.

So what you see is a very strong demand in IP. Very strong demand in optical. Wireless is booming. And you see that we also, as I talked, in the Wireline business have surpassed the fact that the legacy business is now less than 50%, substantially less than 50%, of our Wireline business. And I think the Wireline story will be the story for the years to come when it comes to the fiber rollout.

Now if you then look sector-per-sector. IP in Optics, WDM and our router business grew 40%. That is a great number. That is a great number. Interesting enough, if you look to our opticals, you can see that, of course, a translation of the explosion in volume and it also is interesting to note that our Submarine business, much earlier than the cycle would suggest, is picking up the pace again, 6 contracts in the quarter because of this explosion of volume it has to go transported from one end of the world to the other end of the world. So our Submarine business also is enjoying a very good season, so to say.

If you look to the new stuff that's making the difference, it's disruptive in nature. A 100G portfolio, second to none in the market, is really taking off because the disruptive nature of what you present allows our customers to deal with the challenges they have. So great quarter for IP. 28% in total. 40% of that is in the Routing business.

A great quarter also for Optics where the portfolio is moving very quickly towards the new innovative stuff and away from the old classical models of optical.

Now if you then look to our Wireless business, yes, this is an exciting story. Everybody knows that in the U.S. the journey is from 3G to 4G, and we are right smack in the middle of it. So that's great because it's building capabilities. This is not a one-year event. This is going to last a couple of years for it to build out because not only did we manage with our traditional customers to be a major part of that transformation, we also win a lot of new customers on the same concept. So this is good for our classical business. This is great for our new business. And you will see in the 4G build-out that this is going to last way into the future.

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