Alcatel Lucent (ALU)

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Alcatel-Lucent (ALU)

Q3 2011 Earnings Call

November 04, 2011 8:00 am ET

Executives

Paul J. Tufano - Chief Financial Officer, Executive Vice President and Member of Management Committee

Ben Verwaayen - Chief Executive Officer, Director and Member of Management Committee

Frank Maccary - Vice President of Investor Relations

Analysts

Gareth Jenkins - UBS Investment Bank, Research Division

Francois Meunier - Morgan Stanley, Research Division

Zahid S. Hussein - Citigroup Inc, Research Division

Eric Beaudet - Natixis S.A., Research Division

Tim Boddy - Goldman Sachs Group Inc., Research Division

Sebastien Sztabowicz - Kepler Capital Markets, Research Division

Stuart Jeffrey - Nomura Securities Co. Ltd., Research Division

Sandeep Deshpande - JP Morgan Chase & Co, Research Division

Unknown Analyst -

Odon de Laporte - CA Cheuvreux, Research Division

Achal Sultania

Presentation

Ben Verwaayen

Good evening, depending on where you are. Thank you for joining us at the Q3 results meeting. You know that we always start these presentations with some literature that I strongly recommend you to see and read at your leisure. And let's talk about the quarter, the year and the market.

So first of all, we are making profitable progress in our journey, in our 3-year journey, and beyond. It's important to note that today I can tell you that all our segments are profitable. Our margins are up year-over-year. And if you take the first 9 months of 2011 and you compare it with the first 9 months of 2010, you will see that we have made an improvement of over EUR 400 million in profitability. So our profitability is doing pretty well.

And if you look to what we're doing from a margin management perspective, in making choices, in making choices where to invest, what type of projects to go after, how to deal with it, we're also making good progress. If you look to our costs, well, our costs are, I would say, starting to have a good impact in the organization. You have seen probably if you look to the numbers this quarter that, for example, in SG&A, we have a 3% impact, which is a good start. Then we continue to do that, and it's even a better start for what we need to do. But it's not enough. So you will see that for 2012, we're going to increase our cost-reduction efforts, both in the fixed and in the variable. And we think that EUR 200 million in fixed, additional, EUR 300 million in variable cost reduction is an important element in our way to go forward.

We work in many markets. We work with markets around the world, and some of the markets are doing terrific. Some markets are hesitant. Europe is hesitant, and especially because people need to make choices in a very uncertain reality of the market there is the tendency in Europe to make the decisions in favor of the expansion of the 3G networks, and it happens to be that we are not as strong in Europe as in other regions in the 3G footprint. So therefore, we are particularly vulnerable for those changes in the European scenario versus other markets. And if you look to the reflection that, that will have on what we can expect in Q4, we could actually say that up until quarter 3, we are more or less in line with what we wanted to do.

But in Q4, which normally is the quarter where you can see a bump up, especially in Europe, we expect that our revenues will be not as robust as we initially planned for. And that will have an impact on the way that we have to look through our profitability for the year, and we have to, therefore, not to my pleasure, but we have to reduce our full year guidance to around 4%.

Actually, if you look to the structure of what we're doing as a company, what we're trying to do, what we're trying to sell, how are we trying to help our customer base, how we have increased our relationship with our customers, nothing gets changed from that perspective. If you look to the various markets that we have operated -- which we're operating, most of those have not changed. The change is, as I just explained, in the European scenario, where with all the uncertainties, people make choices, and I understand those choices. And we have on top of the market uncertainty also the regulatory uncertainty still around, are we going to make the investments necessary for a broadband rollout if you combine all of that, this is where we had to come forward and say we think that the year will be around 4%.

Now if you look to our performance in 2011 quarter 3, and you look upon the market perspective, that's exactly the story. We have some amazing things happening around the world. Our growth in Latin America, which is absolutely full in competition with all our competitors from around the world, including the Chinese, we grew 36% year-over-year. We grew a whopping 186% in Mexico. So there is a lot of growth around the world in a very competitive environment across the board. And remember, what we sell to our customers is the journey from voice to video, the ability to deal with the explosion also in the mobile sector as in the fixed, to deal with a very different pattern of usage from our customers.

U.S. grew 10%. If you look to the Rest of the World, you will see that in China, surprisingly, we had a minus 10%, a pulse in the Wireless expansion. Next quarter, you will see that we'll resume business, as usual. But we want, for example, in China, contrast with the Rest of the World, a lot of footprint in PON. So the fiber expansion that is, let's say, hesitant, reluctantly going on in Europe, is going full speed in China, and we play major role on that. I think the market grew -- our role in the market grew something like 60% there.

So you can see that there is a different strategy with a different footprint. Middle East & Africa for us, of course, having historically had a great footprint, both in Egypt and Tunisia and in Libya, was down substantially. You would expect that. And Europe was minus 10%. So that is from a geographical point of view what Q3 was for us.

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