|
Key highlights for the
quarter
- Revenues of Euro 4.065 billion, down 0.9% sequentially
- Adjusted2 gross profit of Euro 1.320 billion or 32.5% of
revenues (33.0% excl. one time item)
- Adjusted2 operating income1 of Euro 40 million or
1.0% of revenues
- Adjusted2 net income (group share) of Euro 41 million or Euro
0.02 per diluted share
- Reported net loss (group share) of Euro (40) million or Euro (0.02) per
diluted share
- Net debt of Euro (600) million at September 30, 2008
- Funded status of pensions and OPEB shows surplus of Euro 2.997 billion at
September 30, 2008
Note: 3rd quarter 2008 reported and adjusted income statement is enclosed in
Annex, click
here.
Paris, October 30, 2008 – Alcatel-Lucent’s Board of Directors
(Euronext Paris and NYSE: ALU) reviewed and approved reported results for the
third quarter 2008.
During the quarter, revenues declined 6.6% year-over-year and decreased 0.9%
sequentially to Euro 4.065 billion. At constant exchange rate,
revenues declined 2.2% year-over-year and 2.9% sequentially. At constant
exchange rate and on a year-over-year basis, Carrier revenues declined 9.4%,
Enterprise revenues grew 6.3% and Services revenues grew 16.6%. The
adjusted2 gross margin was 32.5% of revenues, or 33.0% excluding a
currency hedging loss of Euro 23 million. Adjusted operating expenses declined
9.6% year-over-year and 4.5% sequentially, leading to an adjusted2
operating income1 of Euro 40 million or 1.0% of revenues.
Adjusted2 net income was Euro 41 million or Euro 0.02 per diluted
share, including a one-time income of Euro 63 million pre tax and of Euro 38
million after tax resulting from the amendment of the post retirement
healthcare plan.
Ben Verwaayen, CEO commented: “I am delighted to have joined Alcatel-Lucent,
a company which has the talent, technologies and customer base to grow
profitably in its market.
First, let me state that we are in good shape from a cash standpoint.
We achieved a positive cash flow from operating activities this quarter through
the reduction of our operating working capital requirements. The funded status
of our pensions and other post retirement benefits remains materially positive
with a prudent asset allocation. With gross cash on hand and marketable
securities of Euro 4.46 billion and less than Euro 1 billion worth of bond debt
maturing in the next 12 months, we are adequately funded.
Second, we met our revenue guidance in a more challenging
macroeconomic environment. In addition to the ongoing CDMA decline, we saw a
reduction in spending by certain customers in developed markets, especially in
fixed access and terrestrial optics. This was partly offset, however, by the
strong performance of certain carrier activities, including W-CDMA, NGN and
submarine networks. In addition, we continued to grow our Enterprise business
at a healthy rate and saw accelerated growth in Services.
Having said that, our profitability remains unsatisfactory. The gross
margin came in at the lower end of our expectations in the third quarter,
reflecting an adverse shift in both our product and geographic mixes. In the
carrier space, this was coupled to a declining top-line and led to an adjusted
operating loss which calls for a set of actions that I will be describing over
the coming period. I would nonetheless point to the high single-digit operating
margin in the Enterprise segment and the double-digit operating margin in
Services”.
In its outlook for the third quarter, Alcatel-Lucent was already
prudent in its view about the telecommunications market due to a weakening
macroeconomic environment. Today, the company continues to anticipate that the
global telecommunications equipment and related services market should be flat
in 2008 at constant currency.
Alcatel-Lucent reiterates that its full year 2008 revenue, expressed
in current Euro rate, should be down in the low to mid single-digit range. The
company continues to expect an adjusted gross margin in the mid thirties and an
adjusted operating margin in the low to mid single-digit range in percentage of
revenue in full year 2008.
Based on its outlook for the fourth quarter, the company continues to
expect its year-end net debt to be materially reduced compared to the level at
the end of June 2008.
THALES
Alcatel-Lucent believes that it is possible to maintain its ongoing
partnerships with Thales without necessarily having any capital tie. The
company is currently reviewing all options regarding its 20.8% stake in Thales,
including a potential sale, in the best interest of its shareholders.
Reported
results
For the third quarter 2008, Alcatel-Lucent’s reported revenues
amounted to Euro 4,065 million. The reported gross profit was Euro 1,319
million. Reported operating loss1 was Euro (85) million, including the negative impact from
Purchase Price Allocation (PPA) entries of Euro (125) million. For the quarter,
reported net loss (group share) was Euro (40) million or Euro (0.02)
per diluted share (USD (0.03) per ADS), including the negative after tax impact
from PPA entries of Euro (81) million.
Adjusted
results
In addition to the reported results, Alcatel-Lucent is providing
adjusted results in order to provide meaningful comparable information, which
exclude the main non-cash impacts from PPA entries in relation to the Lucent
business combination. These non-cash impacts are very material and
non-recurring due to the different amortization periods depending on the nature
of the adjustments, as detailed in the annex. Reported figures are not
comparable with our main competitors and many business players who have not
undergone any similar business combinations as the Alcatel and Lucent one.
For the third quarter 2008, Alcatel-Lucent generated revenues of Euro
4,065 million, compared to Euro 4,350 million in the year-ago quarter, a
decrease of 6.6%. The adjusted2 gross profit was Euro 1,320 million
or 32.5% of revenues, compared to an adjusted2 gross profit of
EUR 1,486 million or 34.2% of revenues in the year ago-quarter.
Adjusted2 operating income1 was Euro 40 million,
1.0% of revenues, compared with an adjusted2 operating profit of
Euro 70 million or 1.6% of revenues in the year-ago quarter.
Adjusted2 net income (group share) was Euro 41 million or Euro 0.02
per diluted share (USD 0.03 per ADS), compared to an adjusted2 net
loss of Euro (258) million or Euro (0.11) per share (USD (0.16) per ADS)
in the year-ago quarter.
Balance sheet and pension
status
The net (debt)/cash position was Euro (600) million as of September
30, 2008, compared with
Euro (415) million as of June 30, 2008. The increase in net debt of Euro (185)
million primarily reflects the low level of operating profitability this
quarter, the cash outflow related to restructuring plans (Euro (113) million),
a still high contribution to pensions (Euro (98) million) and the impact of
currency translation on our net debt position (Euro (68) million) partially
offset by a Euro 128 million reduction in total working capital
requirements.
The funded status of pensions and Other Post Employment Benefits
(OPEB) amounted to a surplus of Euro 2.997 billion as of September 30, 2008, up
from Euro 2.848 billion as of June 30, 2008. This increase essentially reflects
a favourable currency translation impact on the funded status of US plans,
which was stable sequentially in USD terms. The funded status of our non US
plans decreased slightly.
|
Adjusted Profit & Loss
|
Third
|
Third
|
% change,
|
Second
|
% change
|
|
Statement
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
In Euro million except for EPS
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Revenues
|
4,065
|
4,350
|
-6.6%
|
4,101
|
-0.9%
|
|
Gross profit
|
1,320
|
1,486
|
-11.2%
|
1,433
|
-7.9%
|
|
in % of revenues
|
32.5%
|
34.2%
|
-1.7 pt
|
34.9%
|
-2.5 pt
|
|
Operating income (1)
|
40
|
70
|
-42.9%
|
93
|
-57.0%
|
|
in % of revenues
|
1.0%
|
1.6%
|
-0.6 pt
|
2.3%
|
-1.3 pt
|
|
Net income (loss) (Group share)
|
41
|
-258
|
Nm
|
-222
|
nm
|
|
EPS diluted (in Euro)
|
0.02
|
-0.11
|
Nm
|
-0.10
|
Nm
|
|
E/ADS* diluted (in USD)
|
0.03
|
-0.16
|
Nm
|
-0.15
|
Nm
|
|
Number of diluted shares (million)
|
2260.4
|
2257.1
|
0.1%
|
2259.1
|
0.1%
|
*E/ADS calculated using the US Federal Reserve Bank of New York noon
Euro/dollar buying rate of USD 1.4081 as of September 30 2008, USD 1.4219 as of
September 28 2007 and USD 1.5748 as of June 30 2008.
|
Segment breakdown
|
Third
|
Third
|
% change,
|
Second
|
% change
|
|
of revenues
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(In Euro million)
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Carriers
|
2,734
|
3,142
|
-13.0%
|
2,811
|
-2.7%
|
|
Enterprise
|
388
|
380
|
2.2%
|
386
|
0.5%
|
|
Services
|
870
|
776
|
12.1%
|
818
|
6.4%
|
|
Other & eliminations
|
73
|
52
|
39.1%
|
87
|
-15.7%
|
|
Total group revenues
|
4,065
|
4,350
|
-6.6%
|
4,101
|
-0.9%
|
|
Breakdown of segment
|
Third
|
Third
|
% change,
|
Second
|
% change
|
|
operating income (1) (loss)
|
quarter
|
quarter
|
y-o-y
|
quarter
|
q-o-q
|
|
(in Euro million)
|
2008
|
2007
|
(% or pt)
|
2008
|
(% or pt)
|
|
Carriers
|
-91
|
21
|
Nm
|
11
|
Nm
|
|
In % of revenues
|
-3.3%
|
0.7%
|
-4.0 pt
|
0.4%
|
-3.7 pt
|
|
Enterprise
|
29
|
29
|
1.4%
|
29
|
0.3%
|
|
In % of revenues
|
7.5%
|
7.5%
|
-0.1 pt
|
7.5%
|
0.0 pt
|
|
Services
|
87
|
40
|
117.5%
|
71
|
23.1%
|
|
In % of revenues
|
10.0%
|
5.2%
|
4.8 pt
|
8.6%
|
1.4 pt
|
|
Other & eliminations
|
15
|
-20
|
Nm
|
-18
|
Nm
|
|
Segment op. income (loss)
|
40
|
70
|
Nm
|
93
|
-57.0%
|
|
Cash Flow highlights
|
Third quarter
|
Second quarter
|
Third quarter
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Net (debt)/cash at beginning of period
|
-415
|
-30
|
221
|
|
Adjusted operating income
|
40
|
93
|
70
|
|
Depreciation & Amort; OP non cash; other
|
198
|
177
|
191
|
|
Operating Cash Flow *
|
238
|
270
|
261
|
|
Change in operating & other WCR
|
128
|
-150
|
-263
|
|
Interest
|
-36
|
-16
|
-21
|
|
Taxes
|
-14
|
-48
|
-13
|
|
Dividends received from equity affiliates
|
0
|
41
|
0
|
|
Cash contribution to pension & OPEB
|
-98
|
-112
|
-54
|
|
Restructuring cash outlays
|
-113
|
-166
|
-128
|
|
Cash flow from operating activities
|
105
|
-181
|
-218
|
|
Capital expenditures (incl. R&D cap.)
|
-217
|
-203
|
-191
|
|
Free Cash Flow
|
-112
|
-384
|
-409
|
|
Disposals, Discontinued, Cash from financing & Forex
|
-73
|
-1
|
64
|
|
Change in net(debt)/cash position
|
-185
|
-385
|
-345
|
|
Net (debt)/cash at end of period
|
-600
|
-415
|
-124
|
|
* Before changes in working capital, interest/tax paid, restructuring cash
outlay and pension & OPEB cash outlay
|
|
Balance sheet - Assets
|
Sept. 30,
|
June 30,
|
Sept. 30,
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Total non-current assets
|
18,941
|
18,348
|
23,303
|
|
of which Goodwill & intangible assets, net
|
10,644
|
10,004
|
14,423
|
|
of which Prepaid pension costs
|
3,053
|
3,129
|
3,412
|
|
of which marketable securities
|
0
|
0
|
56
|
|
of which Other non-current assets
|
5,244
|
5,215
|
5,412
|
|
Total current assets
|
12,941
|
12,595
|
13,403
|
|
of which OWC assets
|
6,991
|
6,902
|
7,124
|
|
of which other current assets
|
1,489
|
1,284
|
1,342
|
|
of which marketable securities, cash & cash equivalents
|
4,461
|
4,409
|
4,937
|
|
Total assets
|
31,882
|
30,943
|
36,706
|
|
Balance sheet - Liabilities and shareholders' equity
|
Sept. 30,
|
June 30,
|
Sept. 30,
|
|
In Euro million
|
2008
|
2008
|
2007
|
|
Total shareholders equity
|
10,432
|
9,957
|
14,473
|
|
of which attributable to the equity holders of the parent
|
9,867
|
9,445
|
13,984
|
|
of which minority interests
|
565
|
512
|
489
|
|
Total non-current liabilities
|
9,966
|
9,801
|
11,663
|
|
of which pensions, and other post-retirement benefits
|
3,960
|
3,967
|
4,499
|
|
of which long term debt
|
3,900
|
3,649
|
4,827
|
|
of which other non-current liabilities
|
2,106
|
2,185
|
2,337
|
|
Total current liabilities
|
11,484
|
11,185
|
10,570
|
|
of which provisions
|
2,541
|
2,545
|
2,705
|
|
of which short term debt
|
1,204
|
1,194
|
323
|
|
of which OWC liabilities
|
5,546
|
5,394
|
5,434
|
|
of which other current liabilities
|
2,193
|
2,052
|
2,108
|
|
Total liabilities and shareholder's equity
|
31,882
|
30,943
|
36,706
|
Please note that all the following business comments are based on a
year-over-year comparison at constant exchange rate, unless otherwise
specified.
Carrier Operating
Segment
For the third quarter 2008, revenues for the Carrier operating segment were
Euro 2,734million compared to Euro 3,142 million in the year-ago quarter, a 13.0% decrease at current exchange rate and a
9.4% decrease at constant rate. The segment posted an adjusted2
operating1 loss of Euro (91) million or an operating margin of (3.3)
% compared to a profit of Euro 22 million or a margin of 0.7% in the year ago
period.
Key highlights:
- Fixed access revenue decreased at a strong double-digit rate. The ongoing
decline in new subscribers to copper-based broadband access, coupled with a
rapidly deteriorating economic environment led certain customers in North
America and Europe to reduce their capital expenditure plans for fixed access,
thus impacting both our DSL and Digital Loop Carrier (DLC) activities.
Alcatel-Lucent shipped 6.1 million DSL ports in the quarter, down 23% from the
year-ago quarter and 21% sequentially. On the other hand, revenue from FTTH
solutions more than doubled this quarter, taking the year-to-date growth to
more than 60%. Alcatel-Lucent further reinforced its leadership position in
next generation broadband access both in FTTN, where it was selected by KPN as
its exclusive supplier and in FTTH where it announced several contract wins,
including EPB in US, Telecom Malaysia and Neuf Cegetel in France as part of a
social housing project in Paris.
- In data networking, revenue from its IP/MPLS service routers enjoyed solid
growth both year over year and sequentially, shipping to more than 20 new
customers, taking the total to more than 250 customers to date. Alcatel-Lucent
announced new wins with Eircom (Ireland), Bezeq (Israel), EPB Telecom (USA) and
Telecom Malaysia. The company’s solution for mobile backhauling (7705 Service
Aggregation Router), is also gaining traction with more than 20 customers and
20 additional trials. The ATM switching business continued on its structural
decline path.
- Optical networking grew slightly this quarter, a contrast with the
double-digit growth rate reported in the first half, reflecting a slowdown in
the terrestrial optical networking market. Submarine networks and microwave
transmission activities grew at a strong double-digit rate.
- In mobile networks, GSM revenue declined this quarter, due to the temporary
freeze on networks expansion in China during the Olympics. W-CDMA revenue
doubled this quarter, as it continued to benefit from a strong ramp-up in
revenues in France, the US and Korea. Alcatel-Lucent won several new W-CDMA
customers in the third quarter including Vodacom in South Africa andBSNL/ITI in
India. Year to date, the company has been selected by 11 new W-CDMA customers,
taking the total to more than 50. CDMA revenues declined materially
year-over-year but recovered sequentially, as the company began shipments to a
Chinese customer.
- LTE: in the past months, the roadmaps as well as the technical and business
requirements of key operators around the world have significantly evolved.
Recognizing the diversity of the market, Alcatel-Lucent and NEC are further
optimizing the scope and format of their technical collaboration in the LTE
radio access space. The two companies are currently considering the opportunity
to focus their technical cooperation on selected parts of the LTE radio access
platform, in the form of specific joint development agreements as appropriate.
Alcatel-Lucent is fully committed to providing its customers with a superior
end-to-end LTE solution. The company has already accelerated its global LTE
development program in the past two quarters, and will continue to do so to
meet the roadmap and requirements of its key customers around the
globe.
- The company’s core switching activities declined moderately year over year,
as the decline in legacy TDM voice was almost entirely offset by the strong,
double-digit growth in NGN.
- Applications had a softer quarter due to a slowdown in legacy Messaging and
IN (Intelligent Networks) activities. Revenue from Subscriber Data Management
and Multimedia applications continued to enjoy strong double-digit growth
driven by Asia and the Americas.
Enterprise Operating
Segment
For the third quarter 2008, revenues for the Enterprise operating
segment were Euro 388 million compared to Euro 380 million in the year-ago
quarter, an increase of 2.2%at current exchange rate and of 6.3% at constant
rate. Adjusted2 operating income1 was Euro 29 million, or
7.5% of revenues, flat from last year.
Key highlights:
- Enterprise Solutions grew in the mid single-digit range. This was driven by
Data networking which enjoyed its seventh consecutive quarter of double-digit
growth as well as the sustained momentum in sales of voice solutions to large
enterprises, more than offsetting the slowdown in demand from small and medium
businesses.
- Genesys, the contact centre software activity, grew at a high single-digit
rate this quarter versus a double-digit rate in the first half, due to a
slowdown in professional services.
- From a geographic standpoint, the segment saw double-digit growth in both
North America and Latin America and low-single digit growth in both Europe and
Asia.
- The adjusted operating margin of the Enterprise segment was stable both
year-over-year and sequentially, at a rather high level.
Services Operating Segment
For the third quarter 2008, revenues for the Services operating
segment were Euro 870million compared to Euro 776 million in the year-ago
quarter, an increase of 12.1% at current exchange rate and of 16.6% at constant
rate. Adjusted2 operating income1 was Euro 87 million or
10.0% of revenues compared to Euro 40 million or 5.2% of revenues in the year
ago quarter.
Key highlights:
- Network operations enjoyed accelerated growth this quarter, both in
revenues and orders due to the ramp-up of some of the large contract wins
announced since the start of the year.
- Network integration grew in the high teens this quarter, a somewhat slower
growth than in the first half, due to the slowdown in the part of the business
which is attached to the sale of carrier products. Alcatel-Lucent nevertheless
continued to enjoy very strong growth in complex network design, network
optimisation and network transformation projects.
- Growth in Professional services – which include the integration of software
applications either from Alcatel-Lucent or third parties – accelerated to the
high teens this quarter compared to the high single-digit growth achieved in
the first half, driven by IPTV and OSS integration.
- Finally, Maintenance returned to double-digit growth this quarter, driven
both by multivendor maintenance and legacy maintenance.
- The segment reached double-digit operating profitability this quarter, due
to the strong year-over-year increase in revenue, a good mix and an improvement
in the gross margin in all four activities.
Alcatel-Lucent will host a press and analyst conference at its
headquarters at 1:00 p.m. CET which can be followed through audio webcast at http://www.alcatel-lucent.com/3q2008
Notes
All adjusted figures are unaudited.
1- Operating income (loss) is the Income (loss) from operating activities
before restructuring costs, impairment of assets, gain (loss) on disposals of
consolidated entities and post-retirement benefit plan amendment.
2- “Adjusted” refers to the fact that it excludes the main impacts from
Lucent’s purchase price allocation (See annex for detailed information).
2009 Upcoming events/ announcements
February 4, 2009 Fourth quarter and full year 2008 results
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Except for historical information, all other information in this
presentation consists of forward-looking statements within the meaning of the
US Private Securities Litigation Reform Act of 1995, as amended. These forward
looking statements include statements regarding the future financial and
operating results of Alcatel-Lucent such as (i) expected revenues, adjusted
gross margin and adjusted operating margin for full year 2008 and (ii) net debt
at year end 2008. Words such as "expects," "anticipates," "targets,"
"projects," "intends," "plans," "believes," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements which are not statements of historical facts. These forward-looking
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to assess. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. These risks and uncertainties are based
upon a number of important factors including, among others: our ability to
operate effectively in a highly competitive industry with many participants;
our ability to keep pace with technological advances and correctly identify and
invest in the technologies that become commercially accepted; difficulties and
delays in achieving synergies and cost savings; fluctuations in the
telecommunications market; exposure to the pricing pressures in the regions in
which we sell; the pricing, cost and other risks inherent in long-term sales
agreements; exposure to the credit risk of customers; reliance on a limited
number of contract manufacturers to supply products we sell; the social,
political and economic risks of our global operations; the costs and risks
associated with pension and postretirement benefit obligations; the complexity
of products sold; changes to existing regulations or technical standards;
existing and future litigation; difficulties and costs in protecting
intellectual property rights and exposure to infringement claims by others;
compliance with environmental, health and safety laws; the economic situation
in general (including exchange rate fluctuations) and uncertainties in
Alcatel-Lucent’s customers’ businesses in particular; customer demand for
Alcatel-Lucent’s products and services; control of costs and expenses;
international growth; conditions and growth rates in the telecommunications
industry; and the impact of each of these factors on sales and income. For a
more complete list and description of such risks and uncertainties, refer to
Alcatel-Lucent's Form 20-F for the year ended December 31, 2007, as well as
other filings by Alcatel-Lucent with the US Securities and Exchange Commission.
Except as required under the US federal securities laws and the rules and
regulations of the US Securities and Exchange Commission, Alcatel-Lucent
disclaims any intention or obligation to update any forward-looking statements
after the distribution of this news release, whether as a result of new
information, future events, developments, changes in assumptions or
otherwise.
|
