Alcatel-Lucent posts smaller Q3 loss as cost cuts take hold

Alcatel-Lucent (NYSE:ALU) reported a narrower loss for the third quarter amid rising revenue. The results indicate that the vendor's massive new cost-cutting plan is starting to take hold as it tries to nurse itself back to health as a smaller company.

The vendor posted a net loss of $273 million in the quarter, narrower than the $431 million loss it had in the year-ago period. Net sales increased 1.9 percent to $5 billion and would have increased 7 percent year-over-year at constant currency exchange rates, the company said.

Alcatel-Lucent said its operating profit excluding some items was $158,3 million, a reversal from a loss of $171.9 million a year ago. The company's profitability got a shot in the arm from higher sales volumes, selling more high-margin products IP networking routers and fixed broadband products, and especially lower fixed costs. The company had a gross margin of 32.6 percent, an improvement from 27.8 percent a year ago.

Earlier this month the company confirmed it would cut 15 percent of its workforce, or 10,000 jobs, as part of its "Shift" reorganization plan aimed at slimming down the company as it seeks to become more of a specialist focused on IP networking, LTE and small cells. The vendor said it's maintaining its goal of cutting fixed costs by up to $1.35 billion by the end of 2015.

Looking ahead, Alcatel-Lucent said it expects its business in the fourth quarter to get a bump, "driven by a strong seasonal activity," and that it expects to exceed the top end of its plan to cut fixed costs by $341 million to $409 million.

"We expect to see a strong end of the year," CEO Michel Combes said on a conference call, according to Bloomberg. "We are extremely committed on cost reductions and over-delivering on that front."

Revenues for the company's wireless division were $1.63 billion in the quarter, an increase of 12.6 percent from the year-ago quarter. The vendor saw strong growth in LTE, driven by ongoing investments in the U.S. market, in addition to positive trends in both the Asia-Pacific and EMEA regions. The company said LTE revenues more than doubled year-over-year, and that its LTE overlay strategy is gathering momentum. Indeed, the vendor's momentum was highlighted recently by its win at Telefónica (Alcatel-Lucent won the largest share of the operator's LTE network in Spain) and China Mobile (Alcatel-Lucent was selected as a vendor in the operator's Phase I TD-LTE network and CNT in Ecuador).

Further, Sprint (NYSE:S) yesterday revealed that it that it will use equipment from Alcatel-Lucent, Samsung and Nokia (NYSE:NOK) Solutions and Networks for Sprint Spark, its plan to add 2.5 GHz TD-LTE services to its current network.

"The recovery story is gaining traction," Sebastien Sztabowicz, an analyst at Kepler Cheuvreux France, told Bloomberg. "Alcatel reported an excellent quarter and the outlook is positive."

Despite the momentum, recently multiple reports have indicated that Nokia's board is considering a deal between NSN and Alcatel-Lucent for Alcatel-Lucent's mobile division. However, the reports said no formal talks between the two companies are ongoing.

Alcatel-Lucent has divested "small assets" in mobile advertising and application enablement, though more significant disposals will come in the future, Combes said, according to Bloomberg.

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

Special Report: Wireless in the third quarter of 2013

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