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October 30, 2009
STRONG OPERATIONAL PROGRESS
• Revenues of Euro 3.687 billion, down 9.3%
year-over-year and 5.6% sequentially
• Adjusted2 gross profit of
Euro 1.232 billion or 33.4% of revenues
• Adjusted2 operating
income1 of Euro (11) million or (0.3)% of revenues
• Reported net loss (group share) of
Euro (182) million or Euro (0.08) per share
• Operating cash flow3 of
Euro 739 million
• Net (debt)/cash of Euro 592 million as
of September 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:
“Our company continues its transformation journey. This quarter
demonstrates both the relevance of our strategy through key customer wins and
our capacity to consistently execute our plans with significant
operational progress.
We are winning in areas of differentiation such as IP transformation, next
generation broadband and wireless, application enablement and services. This is
demonstrated in our wins with Qwest in merging IP and optics into a combined
solution, Singapore’s Nucleus Connect in application enablement, and
the securing of LTE trials with France Telecom-Orange,
Telefonica and Etisalat, bringing our total number of LTE trials to
16.
We have achieved significant operational progress. We are
rapidly reshaping our cost and expense structure, having achieved 80% of
our Euro 750 million target in annualized savings year to date. We generated
Euro 362 million in free cash flow this quarter by improving our operating
working capital metrics. Finally, robust investor reception to our Euro 1
billion convertible bond offering allowed us to further strengthen the balance
sheet.
Against what remains a challenging market environment, we reiterate our view
that our addressable market should be down between 8% and 12% at constant
currency and that we will achieve an adjusted2 operating
income1 around breakeven this year.”
KEY HIGHLIGHTS
• Third quarter revenue
decreased 9.3% year-over-year and 5.6% sequentially to Euro 3.687
billion. At constant currency exchange rates, revenue decreased 11.0%
year-over-year and 3.5% sequentially. The carrier segment saw a double-digit
decline in revenue, driven by 2G wireless access, TDM switching and terrestrial
optics. The segment did see moderate growth in fixed broadband access, good
growth in IP and strong growth in submarine optics, fixed NGN/IMS and W-CDMA.
Enterprise revenue continued to decline at a double-digit rate. Applications
software revenues grew at a strong double-digit rate and finally Services
revenues grew at a low single-digit rate. From a geographic standpoint and in
local currencies, revenue declined at a double-digit rate in both Europe (-13%)
and in the rest of the world
(-32%). On the other hand, revenue declined slightly in Asia Pacific (-1%).
Finally, North America returned to moderate growth this quarter (+1%).
• Adjusted2
operating income1 of Euro (11) million or (0.3%) of revenue.
Adjusted2 gross margin came in at 33.4% of revenue for the quarter,
compared to 32.5% in the year ago quarter and 33.1% in the second quarter 2009.
Excluding the one time item booked in the year ago quarter (Euro (23) million
hedging loss or (50)bp impact), gross margin rose 40bp year over year and rose
30bp sequentially as ongoing cost reduction actions and – on a sequential basis
only – the weakness of the US dollar more than offset the negative impact of
lower volumes and of an adverse shift in the product/geographic mix. Operating
expenses decreased 2.9% year-over-year and 8.3% sequentially, reflecting
ongoing cost reduction plans and – on a sequential basis only – the currency
shift.
• Reported net loss
(group share) of Euro (182) million or Euro (0.08) per share. This includes
a one-time gain related to the amendment of the post retirement benefit plan of
Euro 38 million pre tax and of Euro 23 m or Euro 0.01 per share after tax.
• Net (debt)/cash of Euro
592 million, versus Euro 28 million as of June 30, 2009. Operating cash
flow reached Euro 739 million, as the strong sequential reduction in both
accounts receivable and inventory led to a decrease in operating working
capital requirement of Euro 430 million. Free cash flow was Euro 362 million,
including restructuring cash outlays of Euro (122) million, cash interest
expenses of Euro (41) million, contribution to pensions and OPEB of Euro (37)
million, cash tax of Euro (20) million and capital expenditure of Euro (157)
million. The net (debt)/cash position improved by Euro 564 million, including
Euro 195 million related to the accounting treatment of part of the 2015
convertible bond as equity.
• Funded status of Pensions and
OPEB of Euro (1,267) million at end September, compared to Euro (1,162) million
as of June 30, 2009. The slight sequential widening in the deficit
reflects the decrease in the discount rates used for pensions and
post-retirement healthcare plans in the US, the euro zone and the UK, offset to
a large extent by positive returns in both equity and bond assets.
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: To date, the company estimates that it
has achieved approximately 80% of its plan to reduce costs and expenses by Euro
750 million on an exit run rate by the fourth quarter 2009.Approximately 30% of
the savings achieved year to date comes from a reduction in COGS, 20% from
R&D and 50% from SG&A.
Progress on LTE: France Telecom-Orange has selected Alcatel-Lucent for
an LTE field trial in both FDD (Frequency Division Duplex) and TDD (Time
Division Duplex) modes. This technical trial which aims at gaining a full
assessment of the end-to-end performance of LTE will take place in the south
region of Paris, using Alcatel-Lucent’s e-nodeBs and evolved packet core.
Alcatel-Lucent was also invited to participate in LTE trials by Telefonica and
Etisalat. To date, the company’s LTE solution has been selected by 16 operators
for trials.
Click here for reported and adjusted results, key figures and
adjusted proforma results in PDF
REPORTED RESULTS
In the third quarter, the reported net loss (group share) was Euro (182)
million or Euro (0.08) per diluted share (USD (0.12) per ADS), including the
negative after tax impact from Purchase Price Allocation (PPA) entries of Euro
(39) 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 third quarter 2009
adjusted2 net loss (group share) was Euro (143) million or Euro
(0.06) per diluted share (USD (0.09) per ADS), which includes a restructuring
charge of Euro (136) million, a net financial charge of Euro (15) million, an
adjusted income tax charge of Euro (18) million and minority interests of Euro
(3) million.
ISSUE AND REPURCHASES OF CONVERTIBLES BONDS
On September 2, 2009, Alcatel-Lucent launched an offering of bonds convertible
into and/or exchangeable for new or existing shares (OCEANE) with a coupon of
5%, a strike price of Euro 3.23, equivalent to a conversion premium of 35%, and
a redemption date of January 1st, 2015. On settlement date
(September 10, 2009), the proceeds of this offering, including the
over-allotment option, were Euro 1 billion.
Concurrently, the company offered to repurchase some of its 2011 OCEANE through
a reverse book building process. On settlement date (September 11), the company
had purchased 7 565 882 bonds or 11.97% of outstanding bonds. The
price per bond was Euro 16.70 (including accrued interest) for a total amount
paid of Euro 126 million.
Repurchases of the 2011 OCEANE also took place after September 11, 2009 until
October 6. Over the total period, Alcatel-Lucent repurchased a total of
12 627 240 bonds, equivalent to 19.98% of the bonds initially issued
and currently outstanding. The price per bond (including accrued interest)
ranged between Euro 16.70 and Euro 16.76 for a total amount paid of Euro 211
million. Out of this amount, Euro 172 million was paid on or before September
30, 2009, i.e. during the third quarter. As of today, 80.02% of the 2011 OCEANE
issued remain outstanding, representing a face value of Euro
818 million.
Between September 15 and October 6, 2009, Alcatel-Lucent USA repurchased 2.875%
2023 Series A bonds representing a face value of USD 63 million. The
amount paid was USD 62 million (of which USD 25 million on or before
September 30, 2009). On October 29, 2009, 91.6% of the 2.875% 2023 Series A
bonds issued were outstanding, representing a face value of USD
687 million.
BUSINESS COMMENTARY
CARRIER SEGMENT
For the third quarter 2009, revenues for the Carrier segment were Euro
2.231billion a decrease of 14.6% compared to Euro 2.611 billion in the year-ago
quarter and a decrease of 6.4% compared to Euro 2.384 billion in the second
quarter 2009. At constant currency exchange rates, Carrier revenues decreased
16.2% year-over-year and 4.0% sequentially. The segment posted an
adjusted2 operating1 loss of Euro (27) million or an
operating margin of (1.2) % compared to an operating income of Euro 22 million
or a margin of 0.8 % in the year ago period.
Key highlights:
• Growth
in IP routing: Revenues for the IP division were Euro 284 million, a
decrease of 4.7% from the year ago quarter, impacted by the accelerated decline
of the ATM market. IP/MPLS service router revenues continued to grow at a
mid-single digit rate, with continued expansion in the wireless backhaul market
as well as growing momentum in North America. Alcatel-Lucent announced several
new wins in IP/MPLS including NTT Communications and NTT DoCoMo, Cox Business,
Equinix and Qwest. The company’s IP service routers are now deployed in 22 of
the world’s 30 largest operators and the LTE evolved packet core gateways,
based on the 7750 service router, are now in multiple trials in North America
and EMEA. In September, the company announced a new converged IP/Optical
backbone solution which Qwest plans to deploy in 2010.
• Optics still impacted
by terrestrial: Revenues for the Optics division were Euro 706 million, a
decline of 11.5% from the year ago quarter. All segments of the terrestrial
market declined this quarter although D-WDM revenues recovered sequentially.
Submarine networks enjoyed another quarter of strong double-digit
year-over-year growth. From a geographic standpoint, revenue declined in all
regions except for Asia Pacific, where demand remains strong. The company’s
renewed portfolio including products such as the 1830 PSS (photonic metro WDM),
1850 TSS (packet optical transport), 9500 MPR (packet microwave) as well as
advanced features (GMPLS, 40/100 Gbps) continues to get good traction with
awards from TIM, Deutsche Telekom, TOT, Qwest, Globalive , NORDUnet and
VTN.
• Wireless:
3G growth offset by strong 2G decline: Revenues for the Wireless
Networks division were Euro 859 million, a decline of 18.3%from the year ago
quarter. GSM was sharply impacted by 3G migration, slower mobile subscriber
growth and capital expenditure constraints across almost all geographies. CDMA
declined both year-over-year and sequentially due to continued weakness in
North America, only partly offset by ongoing deployments in China. W-CDMA
enjoyed its highest quarter ever, driven by China and North America.
Alcatel-Lucent’s converged W-CDMA radio network controller (9370) is now
qualified at all of the company’s customers, effectively completing the
integration of the three platforms inherited from the merger.
•
Somewhat better quarter in Wireline: Revenues for the Wireline Networks
division were Euro 404 million, a decline of 18.4% from the year ago quarter.
At constant currency, revenue contracted 20% compared to 32% in the first half
of 2009. While TDM switching continued to decline at a rapid pace, broadband
access - including ADSL, VDSL, GPON and home networking –returned to moderate
growth this quarter versus a double-digit decline in the first half. In
addition, Fixed NGN/IMS reported strong growth this quarter, albeit off a low
base, driven by strong traction for the company’s integrated IMS solution, the
5060 IP call server. Infonetics research ranked Alcatel-Lucent number two in
the IMS Call Session Control Function (CSCF) market with a 21% share for the
rolling four quarters ending in Q2 2009.
APPLICATIONS SOFTWARE SEGMENT
For the third quarter 2009, revenues for the Applications software segment
were Euro 286million, an increase of 19.7% compared to Euro 239 million in the
year-ago quarter and an increase of 10.0% compared to Euro 260 million in the
second quarter 2009. At constant currency exchange rates, Applications software
revenues grew 16.2% year-over-year and increased 13.2% sequentially. The
segment reached operating breakeven compared to an adjusted2
operating1 loss of Euro (22) million or a margin of (9.2) % in the
year ago period.
Key highlights
• Carrier applications
revenue grew in the low thirties this quarter, highlighting the positive
customer response to the company’s focus on applications enablement. Growth was
very strong in digital media & advertising, professional services, remote
customer management software (Motive) and maintenance. Payment & IN
activities grew at a more moderate high single-digit rate this quarter due to
the mature nature of the payment market in EMEA though Alcatel-Lucent continues
to gain momentum in the Americas and in South East Asia. Rich communications
which includes messaging and IMS had a softer quarter after a strong first half
but its prospects remain very solid given recent wins in IMS, especially in
China and in the US. Finally, subscriber data management (HLR and HSS) revenue
was impacted by slower mobile subscriber growth and the completion of some 3G
deployments.
• Revenue from Genesys, the
contact centre software activity declined slightly this quarter. This is due in
part to the impact of the economic environment on corporate investment and in
part to a demanding year-over-year comparison.
• The segment broke-even
this quarter, due to an improvement in carrier applications gross margins, the
better absorption of fixed costs through revenue growth and ongoing cost
reduction initiatives.
ENTERPRISE SEGMENT
For the third quarter 2009, revenues for the Enterprise segment were Euro
250 million, a decrease of 17.2% compared to Euro 302 million in the year-ago
quarter and a decrease of 3.1% compared to Euro 258 million in the second
quarter 2009. At constant currency exchange rates, Enterprise revenues
decreased 18.1% year-over-year and 2.0% sequentially. The segment posted an
adjusted2operating1 profit of Euro 4 million or an
operating margin of 1.6% compared to a profit of Euro 21 million or 7.0 % in
the year-ago quarter.
Key highlights:
• Revenues from Enterprise
solutions declined at a double-digit rate this quarter, impacted by the
continued weakness in voice telephony and in enterprise software applications,
only partially offset by mid-single digit growth in data networking.
• Industrial components
revenues continued to decline year over year this quarter, but at lower pace
than in the first half and grew at a double-digit rate sequentially.
• From a geographic
standpoint, all regions were impacted this quarter, with particular weakness in
EMEA and in the Americas while APAC saw a more moderate decline.
• The segment returned to a
positive adjusted2operating1profit this quarter, in spite
of lower volumes than in the second quarter 2009 which is mainly due to the
impact of the cost containment actions taken during the first half.
SERVICES SEGMENT
For the third quarter 2009, revenues for the Services segment were Euro
869million, an increase of 2.5% compared to Euro 848 million in the year-ago
quarter and a decrease of 0.5% compared to Euro 873 million in the second
quarter 2009. At constant currency exchange rates, Services revenues increased
2.0% year-over-year and increased 0.5% sequentially. The segment posted an
adjusted2 operating profit1 of Euro 38 million or 4.4% of
revenues compared to Euro 88 million or 10.4% in the year ago quarter.
Key highlights:
• Managed & Outsourcing
Solutions grew in the high twenties this quarter, driven by the ongoing
implementation of contracts won in both Western Europe and India over the
2008/2009 period.
• The Network and System
Integration (N&SI) activities grew at a mid-single digit pace this quarter.
While traditional network roll-out services remained impacted by the weakness
of the wireless infrastructure market, N&SI saw good demand for the design
& optimization of complex networks and in the integration of systems and
applications.
• Maintenance activities
declined at a high single-digit rate this quarter, albeit off a strong year ago
quarter. The decline was driven by the maintenance of Alcatel-Lucent products
whereas multivendor maintenance grew slightly.
• The segment saw a
reduction in profitability both year-over-year and sequentially. This is due in
part to the lower contribution of maintenance to the segment’s revenue this
quarter and in part to lower margins in network roll-out services attributable
to the mix of projects completed this quarter. Managed & Outsourcing
Solutions saw a significant improvement in profitability both year-over-year
and sequentially.
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/3q2009
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 next
page 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.
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