Alcatel-Lucent’s troubles are likely to continue in the third quarter, as the network vendor struggles with structural problems, according to one research company.
As part of its second-quarter results, Alcatel-Lucent announced CEO Patricia Russo has decided to leave the company. At the board’s request, Russo said she will continue on as CEO until Alcatel-Lucent finds a replacement. Chairman Serge Tchuruk will also step down, effective Oct. 1. The board will also do some rearranging in the coming months. Both resignations are part of the company’s goal to obtain an aligned governance and management model going forward.
Alcatel-Lucent reported Q2 revenues were up 6.1% sequentially to $6.39 billion, but have decreased year-over-year by 5.2%. Carrier revenues declined 3%, enterprise revenues rose 7% and services revenues grew 16%. Adjusted gross profit totaled $2.24 billion and adjusted net loss sat at $346 million for the quarter.
CDMA letdown
CDMA activity also saw a decrease during the quarter, and at a faster pace than the company had anticipated, which Alcatel-Lucent said was due to a strong reduction in the capital expenditure of a key, unnamed customer in North America. Published reports differed on whether that customer was Verizon Wireless, which Alcatel-Lucent has a long history of supplying equipment to, or Sprint Nextel Corp. The company said the setback brings uncertainty about spending in North America.
Indeed, according to a report published by the Dell’Oro Group, W-CDMA revenues are expected to be the main driver of growth for the infrastructure market during the next five years, while both GSM and CDMA revenues are projected to decline steadily over the same period. By 2012, W-CDMA revenues are forecast to surpass the peak reached by GSM revenues this past year.
Russo said Alcatel-Lucent has picked up on this. “At the same time, we are seeing a stronger-than-expected demand for GSM/W-CDMA mobile access in emerging markets, especially in Asia. In addition, we feel positive about our prospects in China, both in 2G and 3G (including CDMA EV-DO) for the fourth quarter and next year. Finally, we now see a stronger than initially expected demand in services, especially in network operations and network integration. Against this mixed backdrop, we continue to anticipate that the global telecommunications equipment and related services market should be flat in 2008 at constant currency,” Russo said.
UBS: change positive
Weighing in on the Alcatel-Lucent results, investment research firm UBS reported that the final numbers were a bit lower than it had expected, but the firm sees the management change as a positive. However, UBS also foresees a bleak third quarter for Alcatel-Lucent. UBS said that the company’s issues are structural, not managerial. After results were released, Alcatel-Lucent’s stock was up nearly 6%.
