Alcatel-Lucent posts improved Q2 results, plans submarine cable IPO

Alcatel-Lucent (ALU), which announced its “Shift Plan” a year ago, is now looking to shift some of its submarine cable business. When the Paris-based telecom equipment company released its 2014 second quarter results, it announced a planned initial public offering for the subsidiary scheduled for the first half of 2015.
“Let me tell you right away, it is a strategic decision that we are announcing today,” said CEO Michel Combes in a conference call with investors. “This is not an alternative plan.”
Alcatel-Lucent would keep a majority stake in the subsidiary, but the IPO proceeds could help the company enter markets outside telecom, such as oil and gas.
Combes pointed to Alcatel-Lucent’s wireless business as a strong point this quarter, especially with LTE roll-outs in China and the U.S. The company’s second quarter revenues came in at $4.38 billion, growing 0.7% year-on-year. The company did, however, post a net loss of $399 million, compared to approximately $1.2 billion in the same quarter of 2013. Alcatel’s gross margin reached 32.6% of revenues for this quarter, improving by 140 basis points year-on-year, an improvement driven by cost savings.
Alcatel-Lucent’s Shift Plan was announced in June 2013, shortly after Combes took over as CEO, and the plan to transform the business has included many cuts and asset sales, including the sale of its enterprise unit to China Huaxin for $362 million earlier this year. In 2013, it also announced the sale of its subsidiary LGS Innovations for $200 million and up to 10,000 job cuts.
Combes said that the latest Q2 results show traction on the transition plan and that the company’s biggest bets on small cells and LTE are paying off. In those two areas, Alcatel-Lucent nearly tripled its its revenues in the second quarter, the CEO said.
“First, from a near term market standpoint, we saw operators intensifying their focus on wireless access, pushed by LTE deployments,” said Combes. He added that this was seen across the board but more intensely in North America and China.
Alcatel-Lucent is an LTE network vendor for China Mobile, the world’s largest mobile operator, and in March it won a $1.03 billion contract to help move China Mobile toward to an all-IP, “ultra-broadband” network.
Alcatel ranks No. 1 in the small cell equipment market, followed by Airvana, Cisco and Ip.access, according to ABI Research. Earlier in July, the company won a key small cell contract with U.K.-based Vodafone, which is in the midst of its Project Spring, a multi-billion dollar network investment plan.