Analysts have warned that Alcatel-Lucent must return to profitability soon to avoid a cut in its debt rating, after the equipment manufacturer revealed in its first-quarter results that it is still suffering from high cash burn.
Bloomberg reported that Moody's Investors Service said the company's first-quarter results did not relieve concerns about the vendor's earnings and cash flow. The rating agency added that it expects Alcatel-Lucent will meet the requirements to preserve its B3 rating by the end of the year by improving results in coming quarters, but a downgrade would become more likely if profitability is not achieved.
Alcatel-Lucent last week reported its fourth consecutive quarterly loss and said it burned through €533 million of cash in the first quarter, prompting new CEO Michel Combes to initiate a strategy review.
Combes is expected to present the results of his review in June, and asset sales have not been ruled out.
The company has already been able to reduce head count by 5,400 from where it was in the first quarter of 2012. The company cut 3,200 jobs in its managed services business after a review of several managed services deals and the renegotiation of contracts. Alcatel-Lucent said it has addressed 10 out of 15 deals it plans to review, exiting some and renegotiating others.
Meanwhile Alcatel-Lucent this week launched a tender offer to buy back outstanding bonds worth up to €750 million ($977 million) in a bid to reduce interest payments and extend the maturity of its debt. The outstanding bonds mature in 2014, 2015 and 2016.
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