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Alcatel-Lucent delivering on its 3-year transformation journey
Further strong market & company improvement expected in 2011
Key numbers for the fourth
quarter 2010
• Revenues of Euro 4.862 billion, up
22.6% year-over-year and 19.3% sequentially
• Adjusted2 gross profit of
Euro 1.760 billion or 36.2% of revenues
• Adjusted2 operating
income1 of Euro 394 million or 8.1% of revenues
• Operating cash flow3 of
Euro 702 million
• Net (debt)/cash of Euro 377 million as
of December 31, 2010
Key numbers for the year
2010
• Revenues of Euro 15.996 billion, up
5.5% year-over-year
• Adjusted2 gross profit of
Euro 5.572 billion or 34.8% of revenues
• Adjusted2 operating
income1 of Euro 288 million or 1.8% of revenues
• Operating cash flow3 of
Euro 851 million
• Net (debt)/cash of Euro 377 million as
of December 31, 2010
Click
here for the full press release in PDF (including reported and adjusted
results, key figures and adjusted proforma results)
EXECUTIVE
COMMENTARY
Ben Verwaayen, CEO, commented:
“I am energized by the progress we have made over the past two years. We
have overhauled our product portfolio, introduced our High Leverage Network and
Application Enablement strategy, increased our customer relevance and improved
our operational excellence, highlighted by the outstanding revenue growth and
strong margin performance in the fourth quarter.”
He added:
“As we enter into 2011, I am more confident than ever in our ability to
transform into a normal company. We have market momentum, strong customer
relationships, unique strength in the all-IP network transformation & next
generation broadband access. More importantly, we have the passion and
commitment of 78 000 colleagues around the world to provide our customers
with products and solutions to address their business challenges. I am proud of
their accomplishments and want to thank them for their efforts throughout this
past year.
Looking to 2011, we feel confident to grow faster than our addressable
market and aim at a significant increase in profitability with an adjusted
operating margin above 5% of 2011 sales.”
KEY HIGHLIGHTS
Fourth quarter revenue increased 22.6% year-over-year and increased 19.3%
sequentially to Euro 4.862 billion. At constant currency exchange rates and
perimeter, revenue increased 15.1% year-over-year and increased 21.9%
sequentially. Networks saw a strong year-over-year increase in revenue with all
divisions growing. IP revenues topped the Euro 500 million mark and growth in
wireless accelerated again this quarter. Wireline and Optics division sales
change were in the positive territory driven by good growth in GPON, IPDSLAM
and terrestrial optics. Applications revenues posted a year-over-year single
digit increase with Networks applications slightly growing and Enterprise
applications stable. Services revenues grew at a low single digit rate with
double digit growth for Managed & Outsourcing solutions and Network &
System integration. From a geographic standpoint, all regions experienced
revenue growth with strong traction in North America, double digit growth in
Rest of World driven by Brazil and Mexico and high single digit rate growth in
Europe and Asia Pacific with Eastern Europe and Western Europe progressing at
the same pace and accelerating growth in China.
Adjusted2 operating1 income of Euro 394 million or
8.1% of revenue. Gross margin came in at 36.2% of revenue for the quarter,
compared to 36.7% in the year ago quarter and 33.8% in the third quarter 2010.
The year-over-year decrease in gross margin was driven by the competitive
environment mitigated by volume growth, change in geographical and product mix
and a reduction in fixed operation costs. The strong sequential increase in the
gross margin was driven by a change in geographical and product mix, a positive
impact from volumes growth and a decrease in fixed operation costs. Operating
expenses increased 15% year-over-year on a reported basis and adjusted for
constant currency, the increase is 9% year-over-year primarily driven by an
increase in R&D spending related to new product development. On a
sequential basis, operating expenses increased by 4% as reported and by 7% at
constant currency reflecting an increase in SG&A due to significantly
higher sales and R&D investments.
Reported net income (group share) of Euro 340 million or Euro 0.13 per
share. This includes a one-time gain of Euro 105 million pre-tax and of
Euro 78 million after tax related to the disposal of our 2Wire investment and
Adixen business. Purchase Price Adjustments amounted to Euro 73 million pre-tax
and to Euro 45 million after tax.
Net (debt)/cash of Euro 377 million, versus Euro (190) million as of
September 30, 2010.The sequential increase in net cash of Euro 567 million
primarily reflects the positive operating cash flow of Euro 702 million and the
disposal of the assets referenced above for Euro 259 million, partly offset
with restructuring cash outlays of Euro (91) million, contribution to pensions
and OPEB of Euro (62) million and capital expenditures of Euro (230) million.
The positive operating cash flow results from the level of adjusted operating
income and a decrease in operating working capital requirements of Euro 2
million.
Funded status of Pensions and OPEB of Euro (516) million at end of
December, compared to Euro (1,409) million as of September 30, 2010.
Excluding currency impact, the sequential narrowing in the deficit mainly
results from a decrease of our obligations for Euro 828 million due to an
increase in the discount rates used for pensions and post-retirement healthcare
plans and an increase of the fair value of the plan assets for Euro 85 million.
The net effect of currency changes on the fair value of the plan assets and on
our obligations is negative Euro 20 million.
The board recommended not to pay a dividend for fiscal year 2010.
REPORTED
RESULTS
In the fourth quarter, the reported net income (group share) was Euro 340
million or Euro 0.13 per diluted share (USD 0.17 per ADS), including the
negative after tax impact from Purchase Price Allocation (PPA) entries of Euro
(45) 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 Purchase Price Allocation (PPA) entries in
relation to the Lucent business combination. The fourth quarter 2010
adjusted2 net profit (group share) was Euro 385 million or Euro 0.14
per diluted share (USD 0.19 per ADS), which includes a restructuring charge of
Euro (60) million, a net financial gain of Euro 54 million, an adjusted tax
expense of Euro (37) million and a non controlling interests charge of
Euro (12) million.
BUSINESS
COMMENTARY
NETWORKS
For the fourth quarter 2010, revenues for the Networks segment were Euro
2.952billion, an increase of 31.7% compared to Euro 2.242 billion in the
year-ago quarter and an increase of 20.0% compared to Euro 2.459 billion in the
third quarter 2010. At constant currency exchange rates, Networks revenues
increased 23.1% year-over-year and rose 22.8% sequentially. The segment posted
an adjusted2 operating1 profit of Euro 229 million or an
operating margin of 7.8% compared to an adjusted2
operating1 profit of Euro 19 million or a margin of 0.8% in the year
ago period.
Key highlights:
• Revenues for the IP division were Euro
508 million, an increase of 58.8% from the year-ago quarter as IP/MPLS service
router revenues nearly doubled their year-ago level. Demand for our
IP/MPLS solutions strengthened throughout the year, and in the fourth quarter
2010 that business was growing well in excess of 50% across all regions.
Those gains were led by networks’ continuing all-IP transformation, surging
growth in mobile backhaul and, in the fourth quarter, also included initial
revenues for our new 100 gigabit/s Ethernet (100GE) Service Router interface
that was deployed with eight service providers. Full-year revenue for the
IP division increased 24.4% in 2010, with a 40%+ increase in service routing.
During the quarter, America Movil announced a three-year transformation project
to deploy our industry-leading IP/MPLS mobile backhaul solution in 11 countries
in Latin America. Elsewhere, Thailand’s True successfully conducted a
field trial carrying 100 gigabit/second traffic over their Alcatel-Lucent
IP/MPLS network, utilizing our new 100GE Service Router interfaces.
• Revenues for the Optics division were
Euro 815 million, an increase of 6.8% from the year-ago quarter as growth
picked up significantly from its pace earlier in the year. The
terrestrial business was particularly strong, driven by near 50% growth in the
WDM segment, and good progression across the entire portfolio and all regions
driving a second consecutive quarter of growth. Full-year terrestrial
revenues were flat versus 2009. Our submarine business remained subdued
in the fourth quarter, and posted double-digit decline for the full year
leading to overall optics revenue down 7% in 2010. Our integrated
IP/optical 100G solutions continued to gain traction. Portugal Telecom
announced that it had carried traffic over a network that linked our 100G
optical transport and 100G IP/MPLS routing technologies, and 360networks
announced that it will deploy our 100G-capable Converged Backbone
Transformation solution. Elsewhere, Canada’s Orion research and education
network selected our 100G next-generation coherent optical transport technology
for deployment in Canada’s first 100G operational network. Despite slow
submarine sales, contracting activity continued in the fourth quarter. We
signed new agreements with Oi’s GlobeNet, Bezeq International, Seychelles Cable
System and UNIFI to either expand existing, or to build new submarine
networks.
• Revenues for the Wireless division
were Euro 1.156 billion, an increase of 44.5% from the year ago quarter. Strong
growth continued across the wireless portfolio, with 56% growth in our W-CDMA
business, 32% growth in CDMA and 14% in GSM. We recorded our first significant
LTE revenues this quarter. Growth remained particularly strong in the
Americas, where revenues nearly doubled from their year-ago level, and in the
Asia-Pacific region growth was also very strong, contributing for most of the
growth in W-CDMA and most of the double-digit growth in GSM. Within the
Asia-Pacific region, we are seeing renewed momentum in our wireless business in
China. Full-year wireless revenues increased 14.6% in 2010, with increases
across all technologies. During the quarter we signed major frame
agreements with operators in the US and China. A four-year agreement with
Verizon Wireless is expected to be worth $4 billion and includes CDMA and LTE
equipment, IP, optical and microwave backhaul and transport equipment, and
services. Three agreements, with China Mobile, China Telecom and China
Unicom are valued in total at Euro 1.178 billion and include equipment,
applications and services from across our portfolio. In December, Verizon
Wireless launched its 4G LTE network, featuring our LTE radio network
solutions, IP packet core and backhaul, and IMS solutions. We also signed
a new five-year agreement with Sprint to supply their Network Vision project
with network integration services, a converged radio access network, IP/MPLS
and packet microwave backhaul and network monitoring. Russia’s MegaFon selected
our converged radio access network solution to build Siberia’s largest 2G/3G
converged network, and our femto/small cell solution was selected by du in the
UAE to improve indoor mobile coverage.
• Revenues for the Wireline division
were Euro 488 million, as year-over-year growth picked up from -13% in the
first three quarters to a strong 22.6% in the fourth quarter. Legacy TDM
switching continued its decline, but growth was widespread elsewhere in the
portfolio. Overall broadband access – including ADSL, VDSL, GPON and home
networking – increased for the second consecutive quarter, with very strong
growth in GPON driven by Asia-Pacific region and renewed growth in our IP-DSLAM
business driven by EMEA region. IMS core networking revenues also
increased very strongly. Full-year wireline revenue fell 4.4% in 2010 as
a single-digit increase in overall broadband access was more than offset by
declines in legacy switching and next-gen core networking. In the fourth
quarter we were selected by the Saudi Telecom Company (STC) for a major
expansion of its broadband access network, leveraging our VDSL2 and GPON
technologies as well as our professional services capabilities. In
another GPON win, we deployed the first GPON network in Kazakhstan’s capital,
Astana. We were also selected by mobile operator Vodafone Qatar to deploy a new
fiber-to-the-home network and to use our IMS solution to link the new network
with their existing mobile network. During the quarter we were also
actively engaged with next-generation DSL technologies that can significantly
boost transmission speeds over traditional copper infrastructure, and thus
drive renewed spending for copper-based access solutions. With A1 Telekom
Austria we demonstrated how technologies like VDSL Vectoring and our “DSL
Phantom Mode” can dramatically increase the speed of traditional DSL
technologies. We also worked with Turk Telekom to explore the benefits of
next-generation DSL, leveraging our VDSL2 Bonding and Vectoring expertise and
the DSL Phantom Mode technology. Our DSL Phantom Mode technology was also
named Broadband InfoVision’s “Broadband Innovation of the Year.”
• Sales of our next-generation Networks
products increased 72% from the year-ago quarter and reached Euro 1.361 billion
in the fourth quarter. This accounts for 46% of Networks sales, vs. 32%
in the first quarter of 2009.
• The improvement in adjusted operating
margin over the year-ago quarter reflects the positive impact of higher
volumes, costs reduction and favorable shifts in product and geographic sales
mix, with particularly strong contributions from the IP and Wireless
divisions. Full year operating margin also showed significant
improvement, from -3.3% in 2009 to 1.9% in 2010.
APPLICATIONS
For the fourth quarter 2010, revenues for the Applications segment were Euro
575million, an increase of 7.5% compared to Euro 535 million in the year-ago
quarter and an increase of 15.2% compared to Euro 499 million in the third
quarter 2010. At constant currency exchange rates, Applications revenues
increased 1.7% year-over-year and increased 17.6% sequentially. The segment
posted an adjusted2 operating1 profit of Euro 47 million
or an operating margin of 8.2% compared to an adjusted2
operating1 profit of Euro 80 million or a margin of 15% in the year
ago period.
Key highlights
• Network applications revenues of Euro
251 million increased 8.2% from the year-ago period in the fourth quarter, led
by very strong growth in Digital Media & Advertising and our Motive
solution (remote customer management). The Motive business has expanded its
focus to include opportunities in the mobile market – managing mobile devices
and mobile home networks. Revenues in our Applications Maintenance business
also increased, registering a fourth consecutive double-digit gain over the
year-ago quarter. For the year, double-digit growth in Digital Media
& Advertising, Applications Maintenance and Applications Professional
Services (software customization) was largely offset by declines in spending
for legacy payment and messaging applications, limiting the 2010 increase in
Network applications revenue to 2.2%. During the fourth quarter we
announced a collaboration with KPN to explore how to securely expose their
fixed network assets to third-party applications and content providers to
facilitate the development of new commercial services. Also in the area
of Application Enablement, we partnered with Egypt’s Mobinil to provide a
mobile advertising service based on our OptismTM mobile marketing
solution, we established a joint research lab with the Belgian research
institute IBBT focused on the development of next-generation video
applications, and we integrated CASSIS International’s Trusted Service Manager
to enhance the security of our mobile wallet application.
• Revenues in our Enterprise
applications business increased 4.1% over the year-ago quarter, reaching Euro
330 million in the fourth quarter. The data networking business continued
its good double digit growth and included initial revenues for our new
10-Gigabit Ethernet switch launched one quarter ago. Genesys, our customer
contact center software business returned to growth in the quarter. Full year
Enterprise applications revenues increased 3.0% as gains in these two segments
offset decline in voice telephony revenues. In our Genesys business, the
Genesys Contact Center solution was deployed by Russian operator MTS in the
largest contact center in Russia and our intelligent workload distribution
solution (iWD) was selected by a major service provider in Eastern
Europe. During the quarter we also enhanced our leading communications
platform for small- to medium-sized businesses (Omni eXchange Office or OXO)
with enhanced multimedia communication and collaboration capabilities.
• The decline in adjusted operating
margin in the Applications segment in the fourth quarter was concentrated
largely in the Network applications business, with a smaller decline in the
Enterprise applications business. Full year operating margin improved
slightly, from break-even in 2009 to 0.9% in 2010, with a strong
improvement in the contribution of the Enterprise business.
SERVICES
For the fourth quarter 2010, revenues for the Services segment were Euro
1.140 billion, an increase of 10.7% compared to Euro 1.030 billion in the
year-ago quarter and an increase of 20.3% compared to Euro 948 million in the
third quarter 2010. At constant currency exchange rates, Services revenues
increased 3.4% year-over-year and increased 21.8% sequentially. The segment
posted an adjusted2 operating1 profit of Euro 88 million
or 7.7% of revenues compared to Euro 141 million or 13.7% in the year ago
quarter.
Key highlights:
• Double-digit growth continued in our
Managed and Outsourcing Solutions business in the fourth quarter and for the
full year as a whole, driven by growth in EMEA. Our new frame agreement
with China Unicom and the Vodafone Qatar converged network project will
contribute to our managed and outsourcing services activity in the coming
quarters.
• Revenue growth accelerated sharply in
the Network and Systems Integration (NSI) business in the fourth quarter, with
growth across the portfolio led by gains in Multimedia (multi-screen and video
integration) and the Network Design, Integration & Optimization
businesses. Revenue growth was particularly strong in the Americas.
Full-year NSI revenues also increased at a double-digit rate in 2010.
During the quarter, West Carolina Tel selected our Triple Play Express, an
end-to-end IP video solution, to deliver IPTV and other triple-play services.
Elsewhere, our NSI unit will provide a comprehensive range of services,
including network design, integration and optimization services, to the Sprint
Network Vision and the STC network expansion projects.
• Weakness in the MEA sub-region was
largely responsible for a double-digit decline in fourth quarter revenue in the
Network Build and Implementation (NBI) business, which is focused on civil
works. The same MEA sub-region was also largely responsible for a
single-digit decline in full year 2010 NBI revenues, offsetting an increase in
activity in India.
• Maintenance revenues were essentially
flat in the fourth quarter as higher revenue from “product-attached”
maintenance (the maintenance of Alcatel-Lucent products) was largely offset by
a double-digit decline in multi-vendor maintenance. Product-attached
maintenance was strong in China and the Americas while multi-vendor maintenance
was particularly weak in EMEA. Full-year Maintenance revenues fell
slightly in 2010 as a decline in product-attached maintenance more than offset
an increase in multi-vendor maintenance.
• The end market which we define
as “Strategic industries” (including transportation, energy, and public sector)
provided a source of strong double-digit revenue growth for the services
segment in the fourth quarter, particularly for NSI, and included a contract
with Stratos Global to enhance IP communications for oil and gas platform in
the Gulf of Mexico.
• Adjusted operating margin in the
Services segment was weaker than the year ago quarter as the negative impact of
changes in revenue and customer mix, particularly in our NSI business, offset
the positive impacts of our cost-cutting initiatives, but it improved
significantly from the third quarter – from 3.0% to 7.7%. Full year
adjusted operating margin was 2.5% in 2010, down from 5.7% in 2009;
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/4q2010
Notes
All reported figures are currently being audited. 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, litigations and post-retirement benefit plan
amendments.
2- “Adjusted” refers to the fact that it excludes the main impacts from
Lucent’s purchase price allocation (See next page for detailed
information).
3- “Operating cash flow” is defined as cash flow after changes
in working capital and before interest/tax paid, restructuring cash
outlay and pension & OPEB cash outlay
2011 Upcoming events
May 6, 2011: first quarter 2011 results
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