Alcatel-Lucent overcomes sluggish U.S. carrier spending in Q1, bumps up sales and margins

Alcatel-Lucent (NYSE: ALU) said it is still dealing with lower carrier spending in the U.S. but still managed to boost its overall revenue in the first quarter and improve its gross margins on higher sales of software products.

Alcatel-Lucent CEO Michel Combes also defended the company's decision to sell itself to rival Nokia (NYSE:NOK) for around $17.6 billion (€15.6 billion)--that's up from the $16.6 billion value initially announced; the difference is due to changing exchange rates. Combes said Nokia's weaker-than-expected profits in the first quarter will not prompt Alcatel-Lucent to change the terms of the deal. He noted that both companies are reiterating their full-year targets; the companies expect the deal to close in the first half of 2016.

"Our agreement with Nokia doesn't depend on a single quarter--it's based on long-term industrial trends," Combes said on a conference call with reporters, according to Bloomberg. "There's no reason for any change to the deal."

In the first quarter Alcatel-Lucent reported a net loss of $81.3 million, down slightly from a net loss of $82.4 million a year ago. However, the vendor's adjusted operating income more than doubled to $99.3 million, from $37.3 million a year ago, which was roughly in line with analysts' expectations, according to the Wall Street Journal. Further, Alcatel-Lucent saw a jump in its closely-watched gross margin, which climbed to 34.6 percent from 32.3 percent a year earlier. The company benefited from cost-cutting and improved profitability across several business lines and a higher-than-usual proportion of software sales in its Access segment.

Combes reiterated his commitment that Alcatel-Lucent will deliver its first-ever full year of positive free cash flow in 2015.

Alcatel-Lucent saw its revenue bump up 9.2 percent to around $3.66 billion for the quarter, thanks mainly to the rising dollar; at constant currency rates the company's revenue actually fell 4 percent year-over-year.

The company's wireless unit saw sales climb 19 percent year-over-year to $1.33 billion, but they were flat at constant currency rates. Alcatel-Lucent said it saw continuing LTE momentum with six new customers wins in the quarter, including China Telecom. The firm's growth in China was offset by a slowdown in North America. However, the firm said it feels positive about its new portfolio of LTE radio access technology, as well as the introduction of its vRAN platform and wireless unified networks strategy.

In the U.S., by far the company's largest region by revenue, sales actually grew on a nominal basis to $1.66 billion, up from $1.55 billion a year ago. Verizon (NYSE: VZ), AT&T (NYSE:T) and Sprint (NYSE: S) made up 20 percent, 12 percent and 7 percent of the company's total revenue in the first quarter, respectively (compared to 17 percent, 14 percent and 8 percent, respectively, in the year-ago period).

"In a challenging environment and in particular a slow spending environment in North America, Alcatel-Lucent was able to increase its margin," Combes told reporters, according to the WSJ.

Like Nokia and Ericsson (NASDAQ: ERIC), Alcatel-Lucent is seeing slower U.S. network spending as carriers wait until the second half of the year to ramp up capital expenditures.

"The topline and gross margin beat are impressive, especially in the context of weak North America spending and after the very disappointing results of Nokia and Ericsson on that front," Bernstein Research analyst Pierre Ferragu told Reuters.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Special Report: Wireless in the first quarter of 2015

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