Alcatel has signed a memorandum of understanding to outsource the European manufacturing of its GSM handsets to Flextronics amid rumors the French equipment vendor was holding talks with Lucent Technologies Inc.over a possible merger.
Under the MOU, Alcatel will transfer its Laval GSM manufacturing facility to Flextronics as well as 830 of its employees.
Alcatel, which also plans to phase out GSM manufacturing at its plant in Illkrich, France, said the deal is part of its strategy to consolidate its European GSM handset manufacturing.
The company, which has 10-percent GSM market share in Europe, follows in the footsteps of another European vendor, Ericsson, which outsourced its phone manufacturing to Flextronics earlier in the year.
Both Alcatel and Lucent would not comment on the rumor that percolated through Wall Street late last week that they had been involved in sporadic talks for a possible merger.
The story was fueled by a report in the European edition of the Wall Street Journal that indicated the two companies were in merger talks.
However, Alcatel said it offered about $5 billion to acquire the fiber-optics division of Lucent Technologies, deepening suspicion that the merger talks may have been under way at some point and collapsed.
“It is clear also that practically all players are looking closely at it, Alcatel like the others … we have made an initial offer, we will now see how things will develop,” said company Chairman Serge Tchuruk.
Alcatel reported its first-quarter results which the company said indicated positive signals for the future. It suffered a loss in net income from $229 million, or 23 cents per share, to $187 million, or 16 cents per share, in the same period a year earlier as well as sales jump from $5.4 billion to $6.5 billion in the same year-ago quarter.
Excluding income tax and amortization of goodwill, it earned $230 million, a 49-percent drop from $452 million.
“In the midst of current market uncertainties, we grew our overall telecom business well above the market rate,” Tchuruk. “We feel confident that Alcatel will emerge from the present industry downturn with a stronger market share.”
