Despite mixed third quarter financial results, analysts remain bullish on the long-term outlook of Alcatel Inc.’s pending acquisition of Lucent Technologies Inc.
Bill Lesieur, director at Technology Business Research, opined that the mixed results shed light on the potential synergies of the combined company and show that the new entity could very well achieve more sustainable and consistent growth.
“The telecom world sits awaiting the birth of the new mega-telecom equipment leader and the details of the rationalization of its product and services portfolio and merged roadmaps,” noted Lesieur.
Furthermore, Lesieur indicated that the merged services organization of Lucent Worldwide Services and Alcatel Services will be “one of the strongest assets in differentiating the new company against Ericsson and Nokia/Siemens.”
TBR estimates that the new company’s combined services organization will generate $4.8 billion in revenue next year, second only in market share to Ericsson Global Services.
Hesitation among Alcatel’s carrier customers to purchase 3G equipment ahead of the company’s acquisition of Lucent undermined the French infrastructure vendor’s third-quarter financial results.
Alcatel’s net profits tumbled 42 percent during the quarter as sales of wireless network infrastructure gear stalled, leaving the company with net income of just $194 million after bringing in $334 million a year ago.
Revenues rose 1.4 percent year-over-year from $4.1 billion in 2005’s third quarter to $4.2 billion for the same period this year.
Serge Tchuruk, Alcatel’s chief executive officer, said Alcatel’s customers are waiting to buy 3G gear until after the company closes on its transaction with Lucent, which is expected to be finished by the end of this year.
Sales of wireless gear during the quarter slipped from last year’s $1.4 billion to $1.2 billion.
Tchuruk cited stiff competition among wireless vendors as well as the company’s rising investments in next-generation technology, such as mobile TV and WiMAX, as factors that led to decreased profits.
“Momentum is building for WiMAX adoption, with a total of 15 customers to date,” stated Tchuruk.
Tchuruk did indicate that Alcatel’s dealings in the Chinese market registered “good growth.” He also said the company’s acquisition of Nortel Network Ltd.’s UMTS radio access business is expected to bring in additional business once the transaction is finished at the end of the year.
Alcatel declined to provide any forward-looking guidance due to its merger with Lucent.
Alcatel’s earnings failed to impress Wall Street as the company’s stock dipped 92 cents after its announcement to $12.95 per share.
Lucent surprises
By comparison, Lucent’s fourth-quarter results came in above analyst expectations of a 4-percent revenue gain. The company posted revenues of $2.6 billion, up 5 percent from the year-ago $2.4 billion.
However, profits fell flat. Lucent reported net income of $371 million, down slightly from last year’s fourth-quarter profits of $372 million.
Pat Russo, Lucent’s chairman and CEO, explained, “As anticipated, we posted our highest quarterly revenue period for the year, driven primarily by mobility deployments in North America, and we recorded a gross margin of 44 percent.”
Russo credited the company’s results to rollouts of CDMA2000 1x EV-DO Revision A and HSDPA solutions during the quarter, along with converting IMS trials into contracts, specifically with KPN, a service provider in the Netherlands. Russo said KPN selected Lucent’s IMS solution to replace its legacy public-switched network. The contract also calls for Lucent Worldwide Services to serve as the network integrator in migrating KPN to an all-IP network, Russo said.
But KPN wasn’t the only IMS deal that brought in revenue for Lucent, and contracts in other technology units within the company brought in their fair share of sales dollars.
“During the fiscal year, we added six customers for our IMS portfolio, announced more than 70 contracts in 25 countries, and saw revenue growth in UMTS, professional services, data, optical and applications,” said Russo. “We also continued to lead the market in CDMA, including the introduction of EV-DO Rev. A to support next-generation services.”
Lucent’s stock fell 17 cents to $2.51 per share after the company announced its results.
