Alcatel-Lucent posts eighth straight quarterly loss: Wireless network vendor remains confident of turn around

French-American telecommunication equipment manufacturer Alcatel-Lucent posted its eighth straight quarterly loss, posting a $5 billion loss for the fourth quarter, which is the company’s largest since it was formed more than two years ago.
The company took a one-time charge of $5 billion against its earnings and also had to account for a charge of $1.7 billion for its pension. Accounting for a majority of the massive charge was good will the company paid when Alcatel SA and Lucent Technologies Inc. finalized their $11 billion merger in 2006.
“Those are major swings on the balance sheet,” Paul Tufano, company CFO, said in a conference call.
The company’s fourth quarter results had little impact on the company’s stock as it continued to trade at $1.90 per share.
Despite the huge financial loss, CEO Ben Verwaayen said the company is on track in executing a new business strategy as it continues to reduce its workforce of 77,000 and cut operational costs even further.
“This was the best quarter ever since the merger for operating cash,” Verwaayen said. “We are right on track. In some places we have done better. . We know now how to make this work.”
Alcatel-Lucent has been struggling since the merger. Verwaayen was brought in last fall to replace Patricia Russo as the company felt a change in leadership was needed. The company is not the only one in the infrastructure market to struggle. Market leader L.M. Ericsson continues to post profits, but Nokia Siemens Networks reported losses in 2008 and Nortel Networks Corp. filed for bankruptcy last month.
The numbers
Verwaayen said Alcatel Lucent had a strong fourth quarter with revenues of $6.3 billion and a gross profit of $2.1 billion. But overall in 2008, the company’s revenue was $21.8 billion, a decrease of 4.5% from 2007. The company’s overall gross profit for the year was $7.4 billion; it posted a total loss of $6.7 billion.
Becky Watson, an industry analyst for Frost and Sullivan, said Alcatel-Lucent’s results are a reflection of the overall trend in the market, but the company can rebound if it continues to follow through on its new strategy.
“They are a big company,” she said. “It is hard to turn around the ship all at once.”
Analyst Jeff Kagan said the company’s loss is in large part a reflection of the current economic climate.
“This is another quarter of losses for the company,” Kagan said. “We keep wondering if it will ever turn around.”
Kagan questioned how long it will take the company to return to profitability and what shape it will be in once the economy rebounds.
“There are still many questions and few answers,” he said.
Cost savings and job cuts
Verwaayen said the company plans to save $960 million by the end of this year through the company’s plans to cut 1,000 managers and reduce contractors by 5,000. Verwaayen said the company’s goal is to cut losses in half, break even and then turn a profit.
Tufano said the massive charge taken in the fourth quarter was due to the downturn in the economy and a drop in the company’s market capitalization. Normally, the company takes the charge on its balance sheet in the second quarter.
“We have a balance sheet that now reflects the reality of the company,” he said.
As for the pension charge, the company experienced a sharp year-end decline in corporate interest rates used to calculate the net present value of benefits obligations.
Tufano said the company ended 2008 with $5.9 billion in cash and marketable securities. Tufano said the company is also expecting the sale of its investment in defense technology company Thales to net $2 billion and the company has a credit line of $1.7 billion.
“We have more than enough confidence to sustain our operations and execute the plan we have laid out,” he said.
Business in North America and the United States decreased in 2008, but Verwaayen said the company stands to benefit from China issuing 3G licenses this year.
“We feel confident there,” he said. “We can tell you and tell the market, we will be one of the top three players in the Chinese market.”
Tufano said the company’s showing for the final quarter in 2008 is an indicator to the market that the company is on the right track.
“It is one data point in the road back to credibility,” he said. “We have to string more data points together to earn back the trust of the investment community.”