Shares of Alcatel-Lucent sank nearly 14% one day last month after the world's largest maker of telecommunications equipment slashed its sales and profit forecast for the year, citing weak wireless spending in North America. The company said it now expects 2007 revenue to be flat to slightly up at a constant euro-dollar exchange rate. This compares with a previous forecast for revenue growth in the mid-single digits, which Chief Executive Patricia Russo previously defined as 4% to 6%.
This is the third time in less than a year that Alcatel-Lucent which was formed last year by the $11.6 billion merger of France's Alcatel and US-based Lucent Technologies, has disappointed investors with lower guidance or worse-than-expected results. The company warned that the lower revenue would hurt profit and margins, especially in the third quarter, where it now expects to break even at the operating level. Consensus forecasts were for operating profit growth of 5%.
Standard & Poor's analyst Clara Van der Elst said the problems go beyond soft North American demand, noting that Alcatel-Lucent is losing market share to Ericsson in 3G technology and is suffering from price competition from Ericsson and Huawei. "In market share terms, we believe the company continues to lose out," she said. DresdnerKleinwort analyst Per Lindberg, who has a hold rating on the stock, said confidence in the company may have eroded to such lows that operations could be seriously impaired. "It could even trigger talk of aborting the whole combination," he said.
The company has suffered in recent months as customers have delayed orders in the face of an uncertain portfolio. As a result, Alcatel-Lucent has lost business to its competitors, particularly to Sweden's Ericsson, which has won a series of very large deals in emerging markets such as India.
Looking to the fourth quarter, Alcatel-Lucent said it still expects sales to ramp up strongly from the third quarter. The company said it would provide a more detailed update of its plans when it reports third-quarter earnings on Oct. 31.
Alcatel-Lucent is in the process of cutting 12,500 jobs over three years, up from an original target of 9,000. At the time of the merger, the company said the tie-up would yield annual cost savings of 400 million euros in 2007, and then upped that target in January to 600 million euros, without providing any indication of where those savings would be found. (info from MarketWatch)