Alcatel-Lucent returns to profit on small rise in revenue

Revenue rose 2.4 percent as carriers spend on all-IP network construction, but analysts had expected much more

Alcatel-Lucent reported a smaller increase in revenue than analysts had expected, but returned to profit in the second quarter. For the full year, the company expects to grow faster than the market as a whole and to improve its operating margin.

The company pointed to market share gains in optical and IP (Internet Protocol) networking equipment, and sales growth in the Americas and Asia, as reasons for the good quarter.

Revenue for the second quarter totalled €3.9 billion (US$5.61 billion as of June 30, the last day of the period reported), up 2.4 percent on a year earlier but lower than most analysts had expected.

Excluding the effects of exchange rate fluctuations, acquisitions and divestments, revenue grew 10.4 percent year on year, the company said.

The fastest growing business segment was IP networking, where revenue for the quarter rose 27.7 percent year on year, to €406 million. Wireless networking revenue rose 5.7 percent to €1.08 billion, and optical networking revenue rose 3.7 percent to €645 million. Revenue from legacy wireline networking products, however, fell 2.5 percent to €357 million.

Revenue from applications, too, remained flat at €486 million, but within that total the balance is shifting from enterprise applications (€285 million, down 6.6 percent) towards networks applications (€200 million, up 6.4 percent).

Services revenue slipped 1.4 percent to €871 million for the quarter, but would have risen by 2.9 percent at constant currency rates, Alcatel-Lucent said. Revenue from outsourcing and managed services activities rose 20 percent, the company said, compensating for a fall in network builds during the quarter.

Net income rose to €43 million, an improvement on the loss of €184 million in the same quarter last year. Earnings per share of €0.02, or $0.03 per American Depositary Share, were roughly in line with analyst expectations.

The company's operating margin for the quarter was 2.8 percent. Services generated the highest margin, at 6.1 percent, with networks, the bulk of the company's business, generating an operating margin of just 1.9 percent in the second quarter, down 2.4 percent from a year earlier.

For the full year, Alcatel-Lucent forecasts its operating margin will rise to 5.1 percent, and that revenue will grow faster than the addressable market.

Peter Sayer covers open source software, European intellectual property legislation and general technology breaking news for IDG News Service. Send comments and news tips to Peter at peter_sayer@idg.com.

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Peter Sayer

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