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KEY NUMBERS FOR THE SECOND
QUARTER 2009
• Revenues of Euro 3.905 billion, down 4.8% year-over-year,
up 8.5% sequentially
• Adjusted2 gross profit of Euro 1.293 billion or
33.1% of revenues
• Adjusted2 operating income1 of Euro
(62) million or (1.6)% of revenues
• Reported net income (group share) of Euro 14 million or
Euro 0.01 per share, including one time items
• Operating cash flow3 of Euro (287)
million
• Net (debt)/cash of Euro 28 million as of June 30,
2009
• Full-year 2009 guidance to be around break-even at the
adjusted2 operating income1 level reiterated
Click here for the full press release in PDF
Click here for reported and adjusted results, key figures and
adjusted proforma results in PDF
EXECUTIVE COMMENTARY
Ben Verwaayen, CEO, commented:
“Overall, I am pleased with the progress we have made this quarter. We
announced a major co-sourcing/joint go-to-market agreement with HP. We closed
the Thales transaction. Customer desire to partner with Alcatel-Lucent for next
generation solutions continues to grow.”
“Operationally, we are seeing positive trends in our top-line, gross margin
and operating expenses.”
“Looking forward, market conditions remain difficult and operators continue
to be selective about their investments. We reiterate our view that our
addressable market should be down between 8% and 12% at constant currency in
2009. As we look forward to the second half, we expect to achieve our target of
an adjusted operating income around breakeven through further improvement in
our margins and expense structure.”
KEY HIGHLIGHTS
• Second quarter revenue decreased 4.8%
year-over-year and increased 8.5% sequentially to Euro 3.905
billion. At constant currency exchange rates, revenue
decreased 10.5% year-over-year and increased 10.5% sequentially. The carrier
segment saw a double-digit decline in revenue, driven by fixed access,
switching and terrestrial optics. Wireless revenues declined at a mid-single
digit rate, a much lower pace than in the first quarter, driven by sustained
growth in W-CDMA and the recovery of CDMA revenues. Enterprise revenue
continued to decline at a double-digit rate. Applications software revenues
grew at a low single-digit rate while Services revenues grew at a high single
digit rate. From a geographic standpoint, revenue declined at a double-digit
rate in both Europe and in the rest of the world. On the other hand, revenue
was stable in North America on a reported basis (down 13% when accounting for
the change in the Euro/USD exchange) a marked improvement over the first
quarter. Finally, Asia Pacific returned to growth, driven by China and
India.
• Adjusted operating income of Euro (62) million or
(1.6%) of revenue. Adjusted gross margin came
in at 33.1% of revenue for the quarter, compared to 34.9% in the year ago
quarter and 31.5% in the first quarter 2009. The year-over-year reduction in
gross margin was driven by volumes, the product/geographic mix, the recovery of
the US dollar and the non recurrence of the capital gain booked in the year ago
quarter (50bp impact on the gross margin). The sequential recovery in the gross
margin was driven by volume and mix. Operating expenses increased 1.1%
year-over-year due to the strong reduction in R&D capitalization and the
recovery of the US dollar. On a sequential basis, operating expenses declined
2.3%, largely reflecting the company’s ongoing cost reduction initiatives.
• Reported net income (group share) of Euro 14
million or Euro 0.01 per share. Three one
time items impacted both the reported and adjusted net income of Alcatel-Lucent
this quarter. These include 1) a tax free capital gain on the sale of Thales of
Euro 255 million booked in the financial income line 2) a pre tax loss of Euro
175 million (Euro 107 million after tax) related to the change of carrying
value of the Lucent’s convertible debenture 2.875% Series A, also booked in the
financial income line 3) a tax free positive contribution in discontinued
activities of Euro 129 million related to an earn-out clause on the 2007 sale
of the satellite business to Thales. The net after tax impact of all three
items was Euro 277 million or 0.12 per share.
• Net (debt)/cash of Euro 28 million, versus Euro
(841) million as of March 31, 2009. The
sequential reduction in net debt of Euro 869 million primarily reflects the
proceeds from the Thales sale (Euro 1,566 million), partly offset by a negative
operating cash flow of Euro (287) million, restructuring cash outlays of Euro
(104) million and the change of carrying value of the Lucent 2023 convertible
of Euro (165) million. The negative operating cash flow of Euro (287) million
is mainly due to an increase in operating and other working capital
requirements of Euro 385 million. The latter results from a material decrease
in payables and customers’ deposits and advances of Euro (537) million from the
high level reached in prior quarters and a sequential reduction in the amount
of receivables discounted of Euro (111) million. Progress was made in the
management of inventory and accounts receivable, especially overdue. The
company will accelerate its efforts in the second half.
• Funded status of Pensions and OPEB of Euro (1,162)
million at end June, compared to Euro (545)
million as of March 31, 2009. The sequential widening of the deficit
mainly results from a decrease in the discount rates used for US pensions and
post retirement healthcare plans of approximately one percentage point to 6.07%
and 5.64% respectively. Plan assets grew in USD terms, reflecting gains in the
financial markets but were stable in Euro terms due to the decline in the USD
versus the Euro during the quarter.
OUTLOOK AND PROGRESS ON
STRATEGIC PLAN
Alcatel-Lucent reiterates its guidance for 2009. The company
continues to expect the global telecommunications equipment and related
services market to be down between 8% and 12% at constant currency in 2009. The
company still anticipates an adjusted2 operating income1
around break-even in 2009.
Progress on cost reduction plan: in order to meet its year end cost
reduction targets, the company has taken a number of actions on a regional
basis. These actions include headcount reductions, contractor reductions,
co-sourcing, facility consolidation, reducing the use of agents, reducing
commissions, and finding other operational efficiencies. To date, the company
estimates that it has achieved approximately 35% of its plan to reduce costs
and expenses by Euro 750 million on an exit run rate by the fourth quarter
2009.
Update on the co-sourcing strategy. On June 18, 2009, Alcatel-Lucent
and HP announced their intent to form a 10-year co-sourcing agreement which is
expected to help improve the efficiency of Alcatel-Lucent’s IS/IT
infrastructure as well as boost its top-line through an innovative joint
go-to-market approach. Alcatel-Lucent is currently exploring other co-sourcing
partnerships in order to improve the efficiency of its legacy R&D.
Completion of the Thales transaction: on May 17th 2009, the company
completed the sale of its 20.8% stake in Thales to Dassault Aviation for Euro
1.566 billion. Alcatel-Lucent is currently evaluating the potential sale of
other non core assets.
REPORTED RESULTS
In the second quarter, the reported net income (group share) was Euro 14
million or Euro 0.01 per diluted share (USD 0.01 per ADS), including the
negative after tax impact from Purchase Price Allocation (PPA) entries of Euro
(42) million.
ADJUSTED RESULTS
In addition to the reported results, Alcatel-Lucent is providing adjusted
results in order to provide meaningful comparable information, which exclude
the main non-cash impacts from Purchase Price Allocation (PPA) entries in
relation to the Lucent business combination.The second quarter 2009
adjusted2 net profit (group share) was Euro 56 million or Euro 0.02
per diluted share (USD 0.03 per ADS), which mainly includes a restructuring
charge of Euro (123) million, a net financial profit of Euro 35 million, an
adjusted income tax credit of Euro 61 million and a minority interest loss of
Euro 12 million.
Click here for reported and adjusted results, key figures and
adjusted proforma results in PDF
BUSINESS COMMENTARY
CARRIER SEGMENT
For the second quarter 2009, revenues for the Carrier segment were Euro
2.384 billion, a decrease of 10.3% compared to Euro 2.659 billion in the
year-ago quarter and an increase of 7.4% compared to Euro 2.219 billion in the
first quarter 2009. At constant currency exchange rates, Carrier revenues
decreased 16.2% year-over-year and rose 9.6% sequentially. The segment posted
an adjusted2 operating1 loss of Euro (136) million or an
operating margin of (5.7) % compared to an operating income of Euro 83 million
or a margin of 3.1 % in the year ago period.
Key highlights:
• Growth in IP routing, offset by decline in ATM switching:
Revenues for the IP division were Euro 285 million, a decrease of 6.9% from the
year ago quarter. Revenue growth in Alcatel-Lucent IP/MPLS service routers
accelerated to the mid teens this quarter through continued success with fixed
and mobile customers. It was however offset by the significant decline in
revenues from ATM switching and from the re-sale of third-party vendor routers.
Alcatel-Lucent continues to gain market share in the IP edge router space, as
highlighted by reports published by Dell’Oro, IDC, Infonetics, Ovum and Synergy
during the second quarter 2009. On July 16th, 2009, the company
announced the industry’s first 100 Gigabit per second line card for metro, edge
and core, expected to begin shipment in 2010.
• Optics impacted by terrestrial: Revenues for the Optics division were Euro 728 million, a
6.2% decline from the year ago quarter, impacted by the current weakness of the
terrestrial market, particularly in long haul D-WDM. Optical Multi Service
Nodes (OMSN) proved more resilient thanks to metro aggregation. Wireless
transmission also showed better resilience due to investments in mobile
backhauling. Finally, submarine networks enjoyed another quarter of strong
double-digit growth. This quarter, our next generation packet optical platform
(1850 TSS) was selected by NTT DoCoMo to build the mobile backhaul for its LTE
service.
• Better quarter in wireless: Revenues for the
Wireless Networks division were Euro 975 million, a decline of 5.3%from the
year ago quarter. GSM continued to decline at a fast pace, impacted by the
migration to 3G in China and slower economic growth or currency devaluations in
markets where Alcatel-Lucent has a meaningful presence such as Eastern Europe,
South East Asia, the Middle East and Africa. CDMA revenues enjoyed a very
strong recovery, due in part to EV-DO roll-outs in China and in part to the
depressed level of revenue booked in North America in the year ago quarter.
W-CDMA rose in the mid twenties, which was driven by China. Finally, the
momentum in LTE continues to build up with several operators selecting
Alcatel-Lucent for their trials this quarter.
• Wireline impacted by rapid decline in TDM switching: Revenues
for the Wireline networks division were Euro 423 million, a decline of 26.3%
from the year ago quarter. TDM switching saw an accelerated rate of decline
this quarter whereas fixed NGN/IMS proved more resilient. The company’s
integrated IMS solution (5060 IP call server) added three customers this
quarter, including Bouygues Telecom for the test and deployment of new
multimedia communications services. DSL revenue continued to decline, but at a
lower pace than in the first quarter and enjoyed a strong sequential recovery,
albeit off a low base. Alcatel-Lucent announced several new wins in next
generation broadband access this quarter (VDSL, GPON), including Portugal
Telecom, China Mobile and China Telecom.
APPLICATION SOFTWARE SEGMENT
For the second quarter 2009, revenues for the Applications software segment
were Euro 260 million, an increase of 3.2% compared to Euro 252 million in the
year-ago quarter and an increase of 2.0% compared to Euro 255 million in the
first quarter 2009. At constant currency exchange rates, Applications software
revenues decreased (5.9) % year-over-year and increased 4.9% sequentially. The
segment posted an adjusted2 operating1 loss of Euro (25)
million or an operating margin of (9.6) % compared to an adjusted2
operating1 loss of Euro (18) million or a margin of (7.1) % a year
ago.
Key highlights
• Carrier applications revenue increased slightly this
quarter, from a demanding comparison basis in the year ago quarter which had
been very strong for payment and next generation IN revenues. Rich
communications (IMS applications and messaging) and Digital Media &
Advertising nonetheless enjoyed double-digit year over year growth. From a
geographic standpoint, demand remains very strong in North America and strong
in Asia Pacific whereas it was more muted in EMEA. Customer response to the new
applications portfolio and the company’s applications enablement strategy is
very encouraging, highlighted by a strong book to bill ratio for the segment
and a total of 19 design wins this quarter, mainly in Subscriber data
management, Rich communications and Digital media & advertising.
• Genesys, the contact centre software activity, returned to
growth this quarter in a contracting market. This was driven by a surge in
demand from the banking sector as well as a major contract with a large
European operator in Western Europe. The latter highlights the ongoing
successful expansion of Genesys from contact centres to customer care, with a
particular focus on intelligent workload distribution.
• The profitability of the segment was lower than in
the year-ago-quarter and stable-sequentially, highlighting ongoing R&D
investments in carrier applications and the fact that ongoing cost reduction
initiatives have yet to fully materialise.
ENTERPRISE SEGMENT
For the second quarter 2009, revenues for the Enterprise segment were Euro
258 million, a decrease of 15.7% compared to Euro 306 million in the year-ago
quarter and an increase of 5.3% compared to Euro 245 million in the first
quarter 2009. At constant currency exchange rates, Enterprise revenues
decreased 17.9% year-over-year and rose 6.4% sequentially. The segment posted
an adjusted2operating1 loss of Euro (6) million or an
operating margin of (-2.3%) compared to a profit of Euro 24 million or 7.8 % in
the year-ago quarter.
Key highlights:
• Revenues from Enterprise solutions declined at a high
single-digit rate this quarter, slightly less than in the first quarter (low
teens), as the decline in the voice telephony market, due to tough economic
conditions, was better offset this quarter by a mid-single digit growth in data
networking.
• Revenues from Industrial components contracted
materially for the second quarter in a row, highlighting the highly cyclical
nature of the underlying activities.
• From a geographic standpoint, demand remained weak in
all regions except for the Americas, which returned to growth, driven by a
large contract in the healthcare market.
• The profitability of the segment was materially
improved compared to the first quarter 2009, reflecting a more favorable
product and regional mix, lower marketing expenses after the one time costs
incurred in Q1 and initial impacts of the cost containment actions
underway.
SERVICES SEGMENT
For the second quarter 2009, revenues for the Services segment were Euro 873
million, an increase of 7.9% compared to Euro 809 million in the year-ago
quarter and an increase of 9.5% compared to Euro 797 million in the first
quarter 2009. At constant currency exchange rates, Services revenues increased
5.0% year-over-year and 10.2% sequentially. The segment posted an
adjusted2 operating profit1 of Euro 87 million or 10.0%
of revenues compared to Euro 64 million or 7.9% in the year ago quarter.
Key highlights:
• Managed & Outsourcing Solutions enjoyed another
quarter of very strong growth this quarter, driven by the implementation of
many large contracts signed in 2008. On April 30th, Alcatel-Lucent
and Bharti Airtel announced that they have formed a joint venture to manage the
latter’s pan-India broadband and telephone services and help Airtel’s
transition to next generation networks. Under this JV, Alcatel-Lucent will
design, deploy and manage Bharti Airtel’s broadband and telephone network
across India.
• The Network and System Integration (N&SI)
activities returned to slight growth this quarter, as the decline in
traditional network roll-out services was more than offset by the demand for
more complex network and software integration services.
• Maintenance activities enjoyed slight growth this quarter,
driven by multi-vendor maintenance whereas the maintenance of Alcatel-Lucent
products was more or less stable.
• The segment saw an improvement in profitability on a year
over year basis and a strong recovery on a sequential basis. The sequential
turnaround is due to 1) much higher margins in maintenance this quarter, after
an abnormally low level in the first quarter 2) a material improvement in the
contribution from N&SI attributable to a better mix of projects completed
this quarter and finally 3) a significant improvement in the profitability of
Managed & Outsourcing Solutions.
Alcatel-Lucent will host a press and analyst conference at its headquarters
at 1:00 p.m. CET which can be followed through audio webcast at http://www.alcatel-lucent.com/2q2009
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 PDF for detailed information)..
3- “Operating cash flow” is
defined as cash flow after changes in working capital and before
interest/tax paid, restructuring cash outlay and pension & OPEB cash
outlay
2009 Upcoming events
October 29, 2009 third quarter 2009 results
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