|
Key highlights for the
quarter
- Revenues of Euro 4.101 billion, up 6.1% sequentially
- Adjusted2 gross profit of Euro 1.433 billion or 34.9% of
revenues
- Adjusted2 operating income1 of Euro 93million or 2.3%
of revenues
- Adjusted2 net loss (group share) of Euro (222)million or Euro
(0.10) per diluted share
- Goodwill impairment charge of Euro (810) million related to CDMA
- Reported net loss (group share) of Euro (1,102) million or Euro (0.49) per
diluted share
- Chairman Serge Tchuruk and CEO Pat Russo to step down (
see separate press release)
Note: 2nd quarter 2008 reported and adjusted income statement is enclosed in
Annex, click
here.
Paris, July 29, 2008 – Alcatel-Lucent’s Board of Directors (Euronext
Paris and NYSE: ALU) reviewed and approved reported results for the second
quarter 2008.
During the quarter, revenues declined 5.2% year-over-year and increased 6.1%
sequentially to Euro 4.101 billion. At constant Euro/USD exchange
rate, revenues grew 1.7% year-over-year and 8.5% sequentially. At constant
exchange rate and on a year-over-year basis, Carrier revenues declined 3%,
Enterprise revenues grew 7% and Services revenues grew 16%. The
adjusted2 gross margin was 34.9% of revenues, of which
0.5-percentage point was due to a capital gain on the sale of real estate.
Adjusted2 operating income1 was Euro 93 million or 2.3%
of revenues.
During the second quarter of 2008, the CDMA activity declined at a higher
pace than the company had planned. This was due, to a large extent, to a strong
reduction in the capital expenditure of a key customer in North America.
Although there are new opportunities in other geographic areas, the uncertainty
regarding spending in North America has led the company to take more cautious
mid-term assumptions in this activity. This has resulted in a goodwill
impairment charge of Euro (810) million which is reflected in the reported net
loss of Euro (1,102) million or Euro (0.49) per diluted share for the second
quarter.
Patricia Russo, CEO commented:
“Looking beyond the non-cash impairment charge, operationally we made good
progress against our turnaround plan in the second quarter, delivering top-line
and an adjusted operating margin in line with our expectations.
First, revenue performance came in at the higher end of our guidance,
posting sequential growth of slightly more than 6%. We were able to fully
absorb the material decline in CDMA, achieving year-over-year growth of close
to 2% at constant Euro/USD exchange rate, thanks to the strong growth of our
Enterprise and Services operating segments and good performance in most of our
other carrier activities. Of particular note, GSM/W-CDMA/WiMAX continued to
enjoy strong, double-digit growth year-over-year. In addition, our activities
in convergence grew for the first time since completing the merger and we saw
slight growth in our wireline activities.
Second, our adjusted gross margin is in the mid thirties, which is in line
with our overall guidance for the year. Factoring out the impact of one-time
gains, our gross margin increased by 150 basis points year-over-year,
reflecting a more stringent pricing discipline and the impact of our product
costs reduction programs. Sequentially, it declined 90 basis points, in spite
of higher volumes, reflecting to a large extent a negative shift in the product
and geographic mix.
Finally, we continue to make good progress in reducing our fixed costs. Our
operating expenses declined 8.6% year-over-year and 1.7% sequentially. As a
result, we achieved higher adjusted operating margins in all three business
segments, with break-even performance in the carrier segment and high
single-digit operating margins in the Enterprise and Services
segments”.
Pat Russo, CEO, continued: “In our outlook for the second quarter and
full year, we were prudent in our view of the telecommunications equipment
market due to the macroeconomic environment and the resulting potential for
lower capital spending in the US. Over the past three months, the global
macroeconomic environment has further deteriorated and the economic slowdown
has begun to spread to Europe. Although not evident yet, we believe this could
impact somewhat the capital expenditure decisions of certain European
customers, especially in fixed access.
At the same time, we are seeing a stronger-than-expected demand for
GSM/W-CDMA mobile access in emerging markets, especially in Asia. In addition,
we feel positive about our prospects in China, both in 2G and 3G (including
CDMA EV-DO) for the fourth quarter and next year. Finally, we now see a
stronger than initially expected demand in Services, especially in network
operations and network integration. Against this mixed backdrop, we continue to
anticipate that the global telecommunications equipment and related services
market should be flat in 2008 at constant currency”.
With approximately half of the company’s revenue in US dollar or
dollar-linked currencies, Alcatel-Lucent reiterates its previous guidance for
the full year 2008 revenue. Expressed in current Euro rate and due to the
reduction in the value of the dollar since 2007, revenue should be down in the
low to mid single-digit range. The company continues to expect an adjusted
gross margin in the mid thirties and an adjusted operating margin in the low to
mid single-digit range in percentage of revenue in full year 2008. For the
third quarter 2008, Alcatel-Lucent expects its revenue to be flat to
slightly down sequentially, followed by a strong ramp in the fourth
quarter.
Reported results
For the second quarter 2008, Alcatel-Lucent’s reported revenues amounted to
Euro 4,101 million. The reported gross profit was Euro 1,432 million. Reported
operating loss1 was
Euro (21) million, including the negative impact from PPA entries of Euro (114)
million. For the quarter, reported net loss (group share) was
Euro (1,102) million or Euro (0.49) per diluted share (USD (0.77) per
ADS), including the negative after tax impact from PPA entries of Euro (880)
million.
Adjusted results
In addition to the reported results, Alcatel-Lucent is providing adjusted
financial results in order to provide meaningful comparable information, which
exclude the main non-cash impacts from PPA entries in relation to the Lucent
business combination. These non-cash impacts are very material and
non-recurring due to the different amortization periods depending on the nature
of the adjustments, as detailed in the annex. Reported figures are not
comparable with our main competitors and many business players who have not
undergone any similar business combinations as the Alcatel and Lucent one.
For the second quarter 2008, Alcatel-Lucent generated revenues of Euro 4,101
million, compared to Euro 4,326 million in the year-ago quarter, a decrease of
5.2%. The adjusted2 gross profit was Euro 1,433 million or 34.9% of
revenues, compared to an adjusted2 gross profit of
EUR 1,447 million or 33.4% of revenues in the year ago-quarter.
Adjusted2 operating income1 was Euro 93 million,
2.3% of revenues, compared with an adjusted2 operating loss of
Euro (19) million or (0.4%) of revenues in the year-ago quarter.
Adjusted2 net loss (group share) was Euro (222) million or Euro
(0.10) per diluted share (USD (0.16) per ADS), compared to an
adjusted2 net loss of Euro (336) million or Euro (0.15) per share
(USD (0.20) per ADS) in the year-ago quarter.
Balance sheet and pension status
The net (debt)/cash position was Euro (415) million as of June 30, 2008,
compared with
Euro (30) million as of March 31, 2008. The increase in net debt of Euro (385)
million primarily reflects an increase in non operating working capital
requirements mainly related to the bonus payments which were concentrated in
the second quarter, cash outflow related to restructuring plans (Euro (166)
million), our cash contribution to pensions (Euro (112) million) and a slightly
higher-than-anticipated cash income tax payment (Euro (48) million). Based on
the above outlook for revenue and adjusted operating margin, Alcatel-Lucent
expects its year-end 2008 net debt to be materially reduced compared to the
level at the end of June 2008.
The funded status of pensions and other post retirement benefits (OPEB)
amounted to a surplus of Euro 2.848 billion as of June 30, 2008, up from Euro
2.609 billion as of as of March 31, 2008.
Key figures
|
Adjusted Profit & Loss
|
Second
|
Second
|
% change,
|
First
|
% change
|
|
Statement
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
In Euro million except for EPS
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Revenues
|
4,101
|
4,326
|
-5.2%
|
3,864
|
6.1%
|
|
Gross profit
|
1,433
|
1,447
|
-1.0%
|
1,399
|
2.4%
|
|
in % of revenues
|
34.9%
|
33.4%
|
1.5 pt
|
36.2%
|
-1.3 pt
|
|
Operating income (1)
|
93
|
-19
|
Nm
|
36
|
158.3%
|
|
in % of revenues
|
2.3%
|
-0.4%
|
2.7 pt
|
0.9%
|
1.3 pt
|
|
Net income (loss) (Group share)
|
-222
|
-336
|
Nm
|
-95
|
Nm
|
|
EPS diluted (in Euro)
|
-0.10
|
-0.15
|
Nm
|
-0.04
|
Nm
|
|
E/ADS* diluted (in USD)
|
-0.16
|
-0.20
|
Nm
|
-0.07
|
Nm
|
|
Number of diluted shares (million)
|
2259.1
|
2252.6
|
0.3%
|
2259.1
|
0.0%
|
*E/ADS calculated using the US Federal Reserve Bank of New York noon
Euro/dollar buying rate of USD 1.5748 as of June 30, 2008, of USD 1.3502 as of
June 30, 2007 and of USD 1.5805 as of March 31,2008.
|
Segment breakdown
|
Second
|
Second
|
% change,
|
First
|
% change
|
|
of revenues
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(In Euro million)
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Carriers
|
2,811
|
3,104
|
-9.4%
|
2,700
|
4.1%
|
|
Enterprise
|
386
|
376
|
2.7%
|
382
|
1.0%
|
|
Services
|
818
|
750
|
9.1%
|
679
|
20.4%
|
|
Other & eliminations
|
86
|
96
|
-10.4%
|
103
|
-16.2%
|
|
Total group revenues
|
4,101
|
4,326
|
-5.2%
|
3,864
|
6.1%
|
|
Breakdown of segment
|
Second
|
Second
|
% change,
|
First
|
% change
|
|
operating income (1) (loss)
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(in Euro million)
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Carriers
|
11
|
-73
|
Nm
|
-34
|
Nm
|
|
In % of revenues
|
0.4%
|
-2.3%
|
2.7 pt
|
-1.2%
|
1.6 pt
|
|
Enterprise
|
29
|
23
|
24.8%
|
16
|
80.8%
|
|
In % of revenues
|
7.4%
|
6.1%
|
1.3 pt
|
4.2%
|
3.2 pt
|
|
Services
|
71
|
29
|
143.8%
|
19
|
266.3%
|
|
In % of revenues
|
8.6%
|
3.9%
|
4.8 pt
|
2.8%
|
5.8 pt
|
|
Other & eliminations
|
-18
|
2
|
Nm
|
35
|
Nm
|
|
Segment op. income (loss)
|
93
|
-19
|
Nm
|
36
|
154.7%
|
|
Cash Flow highlights
|
Second quarter
|
First
quarter
|
Second quarter
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Net (debt)/cash at beginning of period
|
-30
|
271
|
-48
|
|
Adjusted operating income
|
93
|
36
|
-19
|
|
Depreciation & Amort; OP non cash; other
|
177
|
209
|
335
|
|
Operating Cash Flow *
|
270
|
245
|
316
|
|
Change in operating & other WCR
|
-150
|
-114
|
-118
|
|
Interest
|
-16
|
-108
|
-13
|
|
Taxes
|
-48
|
-38
|
-18
|
|
Dividends received & other
|
41
|
0
|
39
|
|
Cash contribution to pension & OPEB
|
-112
|
-118
|
-72
|
|
Restructuring cash outlays
|
-166
|
-119
|
-99
|
|
Cash flow from operating activities
|
-181
|
-252
|
35
|
|
Capital expenditures (incl. R&D cap.)
|
-203
|
-196
|
-200
|
|
Free Cash Flow
|
-384
|
-448
|
-165
|
|
Disposals, Discontinued, Cash from financing & Forex
|
-1
|
147
|
434
|
|
Change in net(debt)/cash position
|
-385
|
-301
|
269
|
|
Net (debt)/cash at end of period
|
-415
|
-30
|
221
|
* Before changes in working capital, interest/tax paid, restructuring
cash outlay and pension & OPEB cash outlay
|
Balance sheet - Assets
|
June 30,
|
March 31,
|
June 30,
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Total non-current assets
|
18,348
|
19,299
|
24,457
|
|
of which Goodwill & intangible assets, net
|
10,004
|
10,835
|
15,232
|
|
of which Prepaid pension costs
|
3,129
|
3,244
|
3,573
|
|
of which Other non-current assets
|
5,215
|
5,220
|
5,589
|
|
of which marketable securities
|
0
|
0
|
63
|
|
Total current assets
|
12,595
|
12,889
|
13,620
|
|
of which OWC assets
|
6,902
|
6,769
|
6,906
|
|
of which other current assets
|
1,284
|
1,364
|
1,237
|
|
of which marketable securities, cash & cash equivalents
|
4,409
|
4,756
|
5,477
|
|
Total assets
|
30,943
|
32,188
|
38,077
|
|
Balance sheet - Liabilities and shareholders' equity
|
June 30,
|
March 31,
|
June 30,
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Total shareholders equity
|
9,957
|
11,031
|
15,451
|
|
of which attributable to the equity holders of the parent
|
9,445
|
10,519
|
14,976
|
|
of which minority interests
|
512
|
512
|
475
|
|
Total non-current liabilities
|
9,801
|
9,942
|
12,180
|
|
of which pensions, and other post-retirement benefits
|
3,967
|
4,117
|
4,634
|
|
of which long term debt
|
3,649
|
3,621
|
4,982
|
|
of which other non-current liabilities
|
2,185
|
2,204
|
2,564
|
|
Total current liabilities
|
11,185
|
11,215
|
10,446
|
|
of which provisions
|
2,545
|
2,375
|
2,658
|
|
of which short term debt
|
1,194
|
1,211
|
328
|
|
of which OWC liabilities
|
5,394
|
5,350
|
5,512
|
|
of which other current liabilities
|
2,052
|
2,279
|
1,948
|
|
Total liabilities and shareholder's equity
|
30,943
|
32,188
|
38,077
|
Please note that the all the following business comments are based on a
year-over-year comparison at constant Euro/USD exchange rate, unless otherwise
specified.
Carrier Operating Segment
For the second quarter 2008, revenues for the Carrier operating segment were
Euro 2,811million compared to Euro 3,104 million in the year-ago quarter, a 9.4% decrease at current exchange rate and a
3% decrease at constant rate. Adjusted2 operating1
profit was Euro 11 million, an operating margin of 0.4% compared to a loss of
Euro (73) million or a negative operating margin of (2.3%) in the year ago
period.
Key highlights:
- Fixed access revenue decreased at a double-digit rate, due to the ongoing
decline in new subscribers to copper-based broadband access. Alcatel-Lucent
shipped 7.7 million xDSL ports in the quarter, down 20% from the demanding
basis of the year-ago quarter but up 16% sequentially. The year-over-year
decline in xDSL revenue was only partially compensated by the very strong
growth in FTTx revenue. Dell’Oro confirmed Alcatel-Lucent as the clear leader
in the GPON-based FTTH segment, with a four-quarter rolling market share of 48%
in the first quarter 2008.
- In data networking, growth in edge routing was softer this quarter than in
the first one, which is essentially attributable to a demanding year-over-year
comparison as well as the timing of deliveries at certain large customers. The
ATM switching business continued on its structural decline path in the second
quarter 2008, albeit at a more moderate rate than in the first quarter.
- Optical networking enjoyed strong double-digit growth this quarter,
essentially driven by submarine activities and wireless transmission while
terrestrial optical networks grew at a mid single-digit rate.
- In mobile networks, our GSM business grew at a double-digit rate in the
second quarter, which was driven by network expansions in China, India, the
Middle East and Africa. W-CDMA revenue grew very strongly, benefiting from the
ramp-up in revenues at several key clients, including AT&T Mobility,
Bouygues and SFR and sustained growth at other accounts such as Orange, SKT and
KTF. CDMA revenue declined sharply year-over-year, hurt by the significant
reduction in the capital expenditure of a key customer in North-America.
- Our core switching activities contracted at a moderate rate in the second
quarter, as the ongoing decline in legacy TDM voice was almost entirely offset
by the strong, double-digit growth in Fixed and mobile NGN. It must be noted
that our NGN activity is now close in size to our TDM activity.
- Our applications activities grew in excess of twenty percent the second
quarter, a sharp contrast to the moderate growth rate achieved in the first
quarter, due to a pick-up in revenues from Messaging applications and a
stabilisation in our legacy IN (Intelligent Networks) business.
Enterprise Operating Segment
For the second quarter 2008, revenues for the Enterprise operating segment
were Euro 386 million compared to Euro 376 million in the year-ago quarter, an
increase of 2.7%at current exchange rate and of 7% at constant rate.
Adjusted2 operating income1 was Euro 29 million, or 7.4%
of revenues compared to Euro 23 million or 6.1% in the year ago quarter.
Key Highlights:
- Enterprise Solutions grew in the high single-digit range, with a
particularly strong performance in data networking but also good growth in IP
Telephony. The division also showed progress in Security solutions, driven by
recent successes in firewalls and additional orders for its Laptop Guardian
product. From a geographic standpoint, growth remained solid in North America
and was strong in APAC.
- Genesys, the contact centre software activity, enjoyed another quarter of
double-digit growth, driven by a strong performance in Europe and good
resilience in North America.
- The adjusted operating margin of the Enterprise operating segment increased
both year-over-year and on a sequential basis. This is attributable for the
most part to higher volumes, a positive shift in the product and geographic mix
and solid progress in the product costs reduction programs.
Services Operating Segment
For the second quarter 2008, revenues for the Services operating segment
were Euro 818million compared to Euro 750 million in the year-ago quarter, an
increase of 9.1% at current exchange rate and of 16% at constant rate.
Adjusted2 operating income1 was Euro 71 million or 8.6%
of revenues compared to Euro 29 million or 3.9% of revenues in the year ago
quarter.
Key Highlights:
- Network operations grew very strongly, as a result of some of the very
large contracts won in 2007 and in 2008. Alcatel-Lucent announced two large
managed services contracts in the second quarter, including Reliance
Communications in India and Sunrise in Switzerland.
- Network integration also enjoyed another quarter of very strong growth
which was driven by several large and complex projects for the design,
integration and optimisation of networks in Asia and North America.
- Growth in professional services – which includes the integration of
software applications either from Alcatel-Lucent or third parties - was more
moderate this quarter than in the first one, which is mainly due to a much more
demanding comparison basis. For the first half, however, this business grew in
the high single-digit range.
- Finally, Maintenance returned to growth this quarter, due to sustained
growth in multivendor maintenance combined with an unusually strong quarter in
legacy maintenance.
- The segment enjoyed a material improvement in profitability year-over-year,
due to a very favourable mix, a material increase in the gross margin in
Network operations, Network integration and Professional services and an
overall better absorption of fixed costs.
Alcatel-Lucent will host an audio webcast at 1:00 p.m. CET, which can be
accessed at http://www.alcatel-lucent.com/2q2008
Notes
All adjusted figures are unaudited.
1- Operating income (loss) is the Income (loss) from operating activities
before restructuring costs, impairment of assets, gain (loss) on disposals of
consolidated entities and post-retirement benefit plan amendment.
2- “Adjusted” refers to the fact that it excludes the main impacts from
Lucent’s purchase price allocation (See annex for detailed information).
2008 Upcoming Events/ Announcements
October 30: Third quarter 2008 results
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Except for historical information, all other information in this press
release consists of forward-looking statements within the meaning of the US
Private Securities Litigation Reform Act of 1995, as amended. These forward
looking statements include statements regarding the future financial and
operating results of Alcatel-Lucent such as (i) expected revenues for the third
quarter and for the fourth quarter 2008, (ii) expected revenues, adjusted gross
margin and adjusted operating margin for full year 2008. Words such as
"expects," "anticipates," "targets,"
"projects," "intends," "plans," "believes,"
"estimates," variations of such words and similar expressions are
intended to identify such forward-looking statements which are not statements
of historical facts. These forward-looking statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
that are difficult to assess. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. These risks and uncertainties are based upon a number of important
factors including, among others: our ability to operate effectively in a highly
competitive industry with many participants; our ability to keep pace with
technological advances and correctly identify and invest in the technologies
that become commercially accepted; difficulties and delays in achieving
synergies and cost savings; fluctuations in the telecommunications market;
exposure to the pricing pressures in the regions in which we sell; the pricing,
cost and other risks inherent in long-term sales agreements; exposure to the
credit risk of customers; reliance on a limited number of contract
manufacturers to supply products we sell; the social, political and economic
risks of our global operations; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes to
existing regulations or technical standards; existing and future litigation;
difficulties and costs in protecting intellectual property rights and exposure
to infringement claims by others; compliance with environmental, health and
safety laws; whether Alcatel-Lucent can execute against and obtain
benefits from its three-year plan to improve gross margin, cut operating
expenses, and turn around underperforming businesses in order to achieve an
improved operating margin, and whether these efforts will achieve their
expected benefits; the economic situation in general (including exchange rate
fluctuations) and uncertainties in Alcatel-Lucent’s customers’ businesses in
particular; customer demand for Alcatel-Lucent’s products and services; control
of costs and expenses; international growth; conditions and growth rates in the
telecommunications industry; and the impact of each of these factors on sales
and income. For a more complete list and description of such risks and
uncertainties, refer to Alcatel-Lucent's Form 20-F for the year ended December
31, 2007, as well as other filings by Alcatel-Lucent with the US Securities and
Exchange Commission. Except as required under the US federal securities laws
and the rules and regulations of the US Securities and Exchange Commission,
Alcatel-Lucent disclaims any intention or obligation to update any
forward-looking statements after the distribution of this news release, whether
as a result of new information, future events, developments, changes in
assumptions or otherwise.
|
