PARIS—Alcatel Inc. reported strong growth in its fixed-line business during the first quarter, but intense competition in mobile network equipment sales hurt the company’s operating margin, which rose to 6.5 percent from 4.1 percent a year ago, but fell below analyst expectations of 8 percent.
The French equipment vendor posted first-quarter net profits of $129.1 million from sales of $3.8 billion. In the year-ago quarter the company posted net profits of $129.8 million from sales of $3.2 billion.
“Alcatel has once again turned in a solid quarter with strong revenue growth, and improving margins,” stated Serge Tchuruk, chairman and chief executive officer of Alcatel.
Tchuruk pointed out that rising demand for “triple-play” services, combining Internet, phone and TV offerings, was responsible for driving up the company’s fixed-line equipment sales. However, the company said severe competition in sales of second- and third-generation mobile networks has led to a pricing war among equipment vendors. For the first quarter, Alcatel reported $1.59 billion in revenue from fixed-line equipment, along with $1.13 billion from mobile equipment. In 2005, the company had fixed-line revenue of $1.23 billion along with mobile network revenue of $988 million.
Regarding the company’s wireless momentum, Tchuruk said Alcatel is increasing its investment in video and mobile TV technologies.
Looking forward, Tchuruk said, “Our vision of the market remains unchanged as we move toward mid-year: We expect the carrier market to grow in the mid-single-digit range for full-year 2006. Concerning Alcatel’s businesses, we expect full-year revenue to grow above the carrier market rate, with a lower growth rate for the second half compared to the first half as previously announced.
“Second quarter revenues are expected to grow in the mid-to-high single digit range. In an intensifying competitive environment, we continue to target a slight improvement in our full year operating margin as well as expecting to improve free cash flow for the full year.”
Tchuruk also noted that Alcatel’s plans to acquire Lucent Technologies Inc. places Alcatel at the forefront of much needed industry consolidations, adding that the complementary geographical and technological attributes of both companies should provide enhanced earnings opportunities for the combined company. He said the Lucent deal is expected to close in the next six to 12 months.
Wall Street took the earnings news in stride, as Alcatel’s stock traded down just 75 cents at $14.57 per share during morning trading.
