Alcatel-Lucent posts wider Q2 loss, forges small cell pact with Qualcomm

Alcatel-Lucent (NYSE:ALU) reported a wider net loss for the second quarter due to restructuring charges, but the company also unveiled a partnership with chipset maker Qualcomm (NASDAQ:QCOM) to develop small cells for 3G, LTE and W-Fi networks. Qualcomm will also separately take a small stake in Alcatel-Lucent, news that sent the infrastructure vendor's shares up.

Alcatel-Lucent said its second-quarter net loss grew to $1.17 billion, up from a loss of around $336 million in the year-ago period. The loss includes a $731 million impairment charge related to the reorganization of its wireless business and a $257 million restructuring charge.

On the bright side of the ledger, the vendor's operating profit, excluding reorganization and impairment costs, came in at close to $32 million, as total revenue rose 1.9 percent year-over-year to $4.78 billion. Analysts had expected the company post an operating loss and a drop in sales, according to Bloomberg.

Sales in North America were a particular bright spot for Alcatel-Lucent, with sales in the region growing 17.1 percent year-over-year to around $2.17 billion. Sales in every other region of the world declined year-over-year for the company. The company's networks division reported a 5.9 percent rise in sales, but its wireless business declined 1 percent, with revenue of around $1.33 billion. Alcatel-Lucent said its managed services business reported a 15 percent drop in sales to $285 million. The vendor said it has been exiting unprofitable managed services deals and said it has now "addressed" 14 out of the 15 deals in question.

In June CEO Michel Combes unveiled a new restructuring of the company's business focus and balance sheet, intent on reversing seven years of losses at the vendor. The company's "Shift Plan" envisions that it will become more of a specialist by focusing on several core areas in IP networking, and in wireless it will put more emphasis on LTE and small cells and move away from investing in legacy technologies.

As for Alcatel-Lucent's new deal with Qualcomm, Combes said Qualcomm would buy a small stake of less than 5 percent in Alcatel-Lucent. He said the company is looking for three to five other partners to invest in other joint business ventures and to take small stakes totaling just over 5 percent. He said "discussions are under way" on such deals, according to the Wall Street Journal.

The vendor's small cell partnership with Qualcomm will focus on capturing sales from carriers looking to use small cells to boost network capacity in dense urban areas and crowded venues. The two companies plan to jointly invest in a "strategic R&D program" to develop the next generation of Alcatel-Lucent's lightRadio small cell products, which will use Qualcomm chipsets. Citing an unnamed source, the Financial Times reported that the R&D investment from Qualcomm will be worth more than $132 million.

In June Qualcomm unveiled its FSM99xx family of 28-nanometer chips that integrate 3G and LTE for use in small cells. The chipsets support concurrent 3G and LTE operation or dual-carrier LTE with carrier aggregation in pico, metro and enterprise small cells. They also support 802.11ac/n Wi-Fi capabilities. The Qualcomm FSM99xx chips, which incorporate modem technology gained through Qualcomm's acquisition of DesignArt Networks in August 2012, are the first small cell chips from Qualcomm to include LTE connectivity.

For more:
- see this Alcatel-Lucent earnings release
- see this Alcatel-Lucent/Qualcomm release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this FT article (sub. req.)

Special Report: Wireless in the second quarter of 2013

Related Articles:
Alcatel-Lucent's shift may help it survive but could also aid its rivals
Alcatel-Lucent unveils radical restructuring plan, will focus on LTE, small cells in wireless
Alcatel-Lucent CEO: 'We need to generate cash,' turnaround plan to be announced June 19
Alcatel-Lucent's new CEO faces cash flow challenge
Qualcomm releases multi-mode 3G, LTE and Wi-Fi chips for small cells

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