Alcatel-Lucent's weak outlook triggers European telecom sell-off

Worse than expected results from Alcatel-Lucent has alarmed European stock markets, prompting shares in Ericsson and Nokia to slide by 1.3 per cent and 7.9 per cent, respectively.

Alcatel-Lucent shares were down 19 per cent after the company disclosed it will post a €40 million operating loss for the second quarter, The French-based firm blames the unexpected loss on its failure to convert an increase in sales into profit because of its "business mix."

The company reported sales of over €3.5 billion--close to an average of estimates provide by analysts polled by Bloomberg. However, Alcatel-Lucent abandoned its yearly profit targets, and has raised fears within the investment community that a full profit warning could follow.

"Alcatel will miss its operating profit margin due to the delay of business in China and also the negative economic environment," Odon de Laporte, an analyst at Credit Agricole Cheuvreux in London, told Bloomberg. "The impact of China delays for other equipment makers such as Ericsson will be more marginal."

Earlier this year, Alcatel-Lucent said it expected the second half of 2012 to be better than the first, according to the Financial Times. However, in a note investment bank Oddo Securities said: "The operations will remain under pressure, at the least, in the second half and the perception of its financial health will stay degraded."

While Alcatel-Lucent CEO Ben Verwaayen has promised improvements to the company's performance, analysts are uneasy with the future outlook.

"What we reproached in his predecessors [Mr. Tchuruk and Ms. Russo] was the accumulation of bad news and the lack of strategy," Sylvain Navarro, a Paris-based trader with DSF Markets told the Wall Street Journal. "Today we have yet another disappointment."

The company is due to provide more details on its quarterly results on July 26.

For more:
- see this Financial Times article (sub. req.)
- see this Bloomberg article
- see this WSJ article (sub. req.)

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