Lucent Drags Down Alcatel

A profit warning from Lucent Technologies Inc. hit Alcatel's share price the next day (July 11) on the Paris bourse, even though the French giant announced

July 11, 2006

2 Min Read
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LONDON — A profit warning from Lucent Technologies Inc. hit Alcatel's share price the next day (July 11) on the Paris bourse, even though the French giant announced trading in line with expectations.

The two companies announced their intention to merge in April this year.

Lucent said revenues for its fiscal third quarter (to June 30) are expected to be $2.04 billion, some $300 million short of the $2.34 billion expected by analysts.

That number is also shy of second quarter revenues, which were $2.14 billion, and the $2.34 billion recorded in fiscal 2005's third quarter.

Lucent also said earnings per share for the third quarter are expected to be 2 cents -- half the 4 cents analysts had anticipated.The news, issued after the markets closed Monday (July 10) evening, sent Lucent's share price down by 7 cents, about 3 percent, to $2.27 in after-hours trading. When the merger with Alcatel was first announced in early April, Lucent's share price stood at $3.05. That means it's down $0.78, or nearly 26 percent, since then.

But it had a more dramatic impact on Alcatel's stock today. Despite its in-line estimates for its own second quarter (also to June 30), Alcatel's share price fell Euro 0.48, nearly 5 percent, to Euros 9.30 on the Paris exchange. When its merger with Lucent was announced in early April, Alcatel's share price in Paris stood at Euros 13.38, so it has fallen just over 30 percent, since then.

Alcatel declined to comment on Lucent's announcement.

In its statement, Lucent said the drop in revenues, sequentially and compared with last year, is due "primarily to lower sales to North American mobility customers. To a lesser extent, the year-over-year decline was due to decreased revenues in China."

In the company's press release, Lucent CEO Pat Russo says a slowdown in spending due to carrier consolidation is partly to blame, but that "we believe consolidation will lead to opportunities as service providers look to us to help them integrate their large, complex networks."And Lucent COO Frank D'Amelio reckons investments in CDMA and UMTS wireless infrastructure are set to increase, and that, "assuming that our EV-DO Rev A [new CDMA technology] and HSDPA [latest UMTS technology] rollouts remain on track, we expect that mobility deployments in North America will enable us to make the fourth quarter our highest quarterly revenue period for fiscal year 2006 by a significant margin."

The two companies also announced an update on the planned merger, saying that the deal should close before the end of calendar 2006.

However, that update also contained something of a personnel bombshell, as Alcatel's COO, Mike Quigley, will no longer take up the same post at the new company once the merger is completed.

Quigley had been named as the COO elect of the new company when the marriage was announced in April. He will still be a member of the six-strong management committee that will run the combined group.

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