Alcatel-Lucent reports adjusted operating profit. Strong progress in Q2 and stronger second-half expected and full-year 2010 outlook maintained. Ben Verwaayen, CEO, commented: "I am pleased with the continuing progress in our transformation journey, illustrated in the second quarter both by the top line and profitability. Revenues for the quarter reflect the on-going and expected overall improvement in market conditions and the good traction of our product portfolio. This is notably highlighted by the good performance in IP and wireless and, from a geographic standpoint, by strong growth in North America. The quarter also saw strategic and major wins with our selection by the NBN Company as a supplier for the Australian nationwide superfast broadband network rollout and by the ACE consortium to deploy a submarine optical link between Europe and Africa. And I am proud to announce that Alcatel-Lucent has been selected by AT&T as one of its Domain Suppliers for IP/MPLS/EPC equipment."
He added:
"We remain focused on operational execution as evidenced by our ability to improve component availability and maintain costs and expenses discipline. Further benefits are expected in the coming quarters.
Alcatel-Lucent is preparing for a strong second half of the year, backed with a growing order book. As sales trends continue to improve and we continue to see the benefits of our actions on costs, the leverage effect at the operating profit level will be significant. We maintain our full-year outlook."
KEY HIGHLIGHTS
· Second quarter revenue increased 17.4% sequentially and decreased 2.4% year-over-year to Euro 3.813 billion. At constant currency exchange rates and perimeter, revenue increased 11.8% sequentially and decreased 6.9% year-over-year. Networks saw a year-over-year single-digit decline in revenue, driven by fixed access, switching and optics. This has been partially offset by continued strong growth in IP and WCDMA. Applications revenues grew at a low single-digit rate with enterprise solutions & Genesys stable. Services revenues declined at a mid single digit rate. From a geographic standpoint, traction was strong in North America with a double digit rate of growth and an improved trend in Rest of the World with a much smaller decline in revenues than in the first quarter. The sales decline in Europe remained in the high single digit range. Finally, Asia Pacific witnessed a double digit rate decline due to low activity in China, partly offset by significant growth in India.
· Adjusted2 operating1 income of Euro 28 million or 0.7% of revenue. Adjusted gross margin came in at 36.1% of revenue for the quarter, compared to 33.1% in the year ago quarter and 32.6% in the first quarter 2010. The year-over-year increase in gross margin was driven by the product/geographic mix and the impact of our initiatives on fixed operations costs. The sequential recovery in the gross margin was driven by volume and mix. Operating expenses decreased 0.4% year-over-year on a reported basis and decreased 4.7% at constant currency due to the reduction in SG&A. On a sequential basis, operating expenses as reported increased by 7.7%, reflecting a selective investment in R&D and the rise of the US dollar.
· Net (debt)/cash of Euro 107 million, versus Euro 512 million as of March 31, 2010. The sequential decrease in net cash of Euro 405 million primarily reflects the negative operating cash flow of Euro (58) million, restructuring cash outlays of Euro (76) million, contribution to pensions and OPEB of Euro (64) million and capital expenditures of Euro (146) million. The negative operating cash flow is mainly due to an increase in operating working capital requirements of Euro 202 million. Alcatel-Lucent experienced a material increase of inventory to secure availability of components and prepare for a strong second half of the year.
· Funded status of Pensions and OPEB of Euro (1,802) million at end June, compared to Euro (617) million as of March 31, 2010. The sequential widening of the deficit mainly results from a decrease in the discount rates used for US pensions and post retirement healthcare plans. Plan assets grew this quarter reflecting gains in the financial markets.
OUTLOOK
Alcatel-Lucent reiterates its outlook for 2010. While our supply chain is still experiencing capacity constraints, the demand for telecommunications equipment and related services is recovering due to booming data traffic and the need to increase network efficiency. Therefore:
· For 2010, Alcatel-Lucent continues to expect nominal growth (defined as between 0% and 5%) for the telecommunications equipment and related services market.
· For 2010, Alcatel-Lucent aims to reach an adjusted operating margin in the low to mid single-digit range (defined as between 1% and 5%).
REPORTED RESULTS
In the second quarter, the reported net income (loss) (group share) was Euro (184) million or Euro (0.08) per diluted share (USD (0.10) per ADS), including the negative after tax impact from Purchase Price Allocation (PPA) entries of Euro (45) million.
|
Reported Profit & Loss
|
Second
|
Second
|
% change
|
First
|
% change
|
|
Statement
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(In Euro million except for EPS)
|
2010
|
2009
|
(% or pt)
|
2010
|
(% or pt)
|
|
Revenues
|
3,813
|
3,905
|
-2.4%
|
3,247
|
17.4%
|
|
Gross profit
|
1,377
|
1,293
|
6.5%
|
1,058
|
30.2%
|
|
in % of revenues
|
36.1%
|
33.1%
|
3.0 pt
|
32.6%
|
3.5 pt
|
|
Operating income / (loss)(1)
|
(45)
|
(130)
|
Nm
|
(263)
|
Nm
|
|
in % of revenues
|
-1.2%
|
-3.3%
|
2.1 pt
|
-8.1%
|
6.9 pt
|
|
Net income (loss) (Group share)
|
(184)
|
14
|
Nm
|
(515)
|
Nm
|
|
EPS diluted (in Euro)
|
(0.08)
|
0.01
|
Nm
|
(0.23)
|
Nm
|
|
E/ADS* diluted (in USD)
|
(0.10)
|
0.01
|
Nm
|
(0.31)
|
Nm
|
|
Number of diluted shares (million)
|
2,259.8
|
2,267.3
|
-0.3%
|
2,259.7
|
0.0%
|
*E/ADS calculated using the US Federal Reserve Bank of New York noon Euro/dollar buying rate of USD 1.2291 for June 30, 2010; 1.4020 as of June 30, 2009 and 1.3526 as of March 31, 2010.
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 2010 adjusted2 net loss (group share) was Euro (139) million or Euro (0.06) per diluted share (USD (0.08) per ADS), which includes a restructuring charge of Euro (110) million, a net financial loss of Euro (17) million, an adjusted income tax expense of Euro (32) million and a non controlling interests gain of Euro 1 million.
|
Adjusted Profit & Loss
|
Second
|
Second
|
% change
|
First
|
% change
|
|
Statement
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(In Euro million except for EPS)
|
2010
|
2009
|
(% or pt)
|
2010
|
(% or pt)
|
|
Revenues
|
3,813
|
3,905
|
-2.4%
|
3,247
|
17.4%
|
|
Gross profit
|
1,377
|
1,293
|
6.5%
|
1,058
|
30.2%
|
|
in % of revenues
|
36.1%
|
33.1%
|
3.0 pt
|
32.6%
|
