Citing the drastic deterioration in the global economic outlook, Alcatel-Lucent reported a financial goodwill impairment charge of EUR 3.910 billion, resulting in a net loss of EUR 3.892 billion, or EUR (1.72) per diluted share, for Q4 2008. Revenues for the quarter totaled EUR 4.954 billion, within the company’s expectations.
In summary, revenue for fixed and mobile access were down, while strong performance was noted in IP routing, submarine and NGN/IMS sales. The company also saw resilience in its Enterprise business and noted solid growth in Services.
Alcatel-Lucent reiterated its guidance for 2009. The company expects the global telecommunications equipment and related services market to be down between 8% and 12% at constant currency in 2009. The company continues to anticipate an adjusted operating profit around break-even in 2009.
Alcatel-Lucent cited progress on strategic plan: since January 1st, anew organization is in place. The aim is to reduce costs by EUR 750 million on an annual run rate by end 2009.
Alcatel-Lucent has started to implement its plan to introduce more focused R&D and streamline its product portfolio, starting with mature technologies and the refocusing of its WiMAX investment on the enhanced wireless DSL market opportunity, while at the same time significantly boosting investments in LTE.
Alcatel-Lucent is currently exploring co-sourcing and partnering options.
Some highlights for the quarter:
CARRIER OPERATING SEGMENT
- For the fourth quarter 2008, revenues for the Carrier operating segment were EUR3.295 billion a decrease of (11.8) % compared to EUR3.734 billion in the year-ago quarter, and an increase of 20.5% compared to EUR2.734 billion in the third quarter 2008. At constant currency exchange rates, Carrier revenues decreased 13.9%year-over-year and increased16.1%sequentially. The segment posted an adjusted2 operating1 profit of EUR45 million or an operating margin of 1.4% compared to a profit of EUR93 million or a margin of 2.5% in the year ago period.
- Fixed access revenue declined at a double-digit rate this quarter, impacted by the ongoing decline of the legacy ADSL market in Europe and North America.
- Alcatel-Lucent shipped 6.7 million DSL ports in the quarter, down 21% from the year-ago quarter and up 12% sequentially While the deployment of next generation, fibre-based access networks has been slower than expected for both regulatory and economic reasons, Alcatel-Lucent is best positioned to benefit, with a four-quarter rolling market share ending in the third quarter 2008 of 46% in both the VDSL and GPON segments, according to Dell’Oro.
- Alcatel-Lucent enjoyed its highest quarter ever in IP/MPLS service router revenues, with strong double-digit growth, reflecting the success of the upgraded product portfolio as well as increased customer diversification, notably in North America. The company’s IP/MPLS service routers started shipping to 15 new customers in the fourth quarter, taking the total customer base to more than 250 customers in more than 100 countries. The ATM switching business continued on its structural decline path.
- Optical networking revenue was impacted by the slowdown in the terrestrial market, particularly in the long distance DWDM segment. This was partly offset by very strong growth in submarine networks and healthy growth in microwave transmission. Alcatel-Lucent is enjoying good traction with its latest introductions, with 60 customers for the next generation optical transport system (1850 TSS) and a total of 25 contracts and trials for the newly introduced microwave packet transport system (9500 MPR).
- In mobile networks, GSM revenue declined at a lower rate than in the third quarter as the Chinese market recovered after the freeze on network expansions due to the Olympics. W-CDMA revenue was more or less stable when compared to a strong year-ago quarter but grew approximately 50% for the year as whole. CDMA revenue declined at a much lower rate than in the prior two quarters and enjoyed strong sequential recovery, driven by shipments to a new customer in China as well as higher-than-expected capital spending by a large North American CDMA operator.
- In the Chinese 3G market, where the vendor selection process is ongoing, Alcatel-Lucent believes it is now well positioned to be one of the top three suppliers and expects to be present in all three technologies (CDMA EV-DO, TD-SCDMA, and W-CDMA) with an increased market share compared to 2G technologies. This should result in material volume shipments starting this year, more than compensating for the expected decline of the Chinese 2G market.
- The company’s core switching activities were impacted by the strong decline in legacy TDM voice. After another quarter of double-digit growth, revenues in NGN/IMS are now higher than in legacy TDM switching. Alcatel-Lucent’s IMS solution continued to gain traction, with two more customer wins in Canada and Brazil this quarter.
- Revenue from applications was impacted in the fourth quarter by the decline in legacy payment and Intelligent Networks (IN). Alcatel-Lucent nonetheless enjoyed good growth in Subscriber Data Management and Messaging.
ENTERPRISE OPERATING SEGMENT
- For the Fourth quarter 2008, revenues for the Enterprise operating segment were EUR433 million, a decrease of (0.4)% compared to EUR435 million in the year-ago quarter and an increase of 11.7% compared to EUR388 million in the third quarter 2008. At constant currency exchange rates, Enterprise revenues decreased 2.4% year-over-year and increased 7.5% sequentially. Adjusted2 operating income1 was EUR55 million, or 12.6% of revenues compared to EUR56 million or 12.8% in the year-ago quarter.
- Enterprise Solutions grew slightly in the quarter in spite of deteriorating economic conditions. The decline in the SMB voice telephony market was more than compensated by slight growth in the large enterprise voice telephony market and double-digit growth in data networking. Revenue from security solutions doubled in the quarter, albeit from a small base, driven in part by the success of the company’s firewall solutions.
- Genesys, the contact centre software activity, returned to double-digit growth in the fourth quarter, with a stronger-than-expected finish to the year across all product lines and geographies.
- From a geographic standpoint, revenue grew strongly in North America driven by the ongoing implementation of a large end-to-end contract, contracted slightly in EMEA and declined in both Latin America and APAC.
- The adjusted operating margin was almost stable from the year-ago quarter, in spite of the slight revenue decline, reflecting a slight improvement in the segment gross margin.
SERVICES OPERATING SEGMENT
- For the fourth quarter 2008, revenues for the Services operating segment were EUR1.086billion an increase of 6.4% compared to EUR1.020 billion in the year-ago quarter and an increase of 24.8% compared to EUR870 million in the third quarter 2008. At constant currency exchange rates, Services revenues increased 6.6% year-over-year and increased 23.3% sequentially.
- Network operations enjoyed another quarter of very strong growth, driven by some of the large contract wins booked throughout the year, including Brazil Telecom, Reliance, Orange Switzerland, Sunrise and BT.
- Network integration reported growth in the mid teens this quarter, similar to the prior quarter, driven by complex network design, network optimization and network transformation projects.
- Professional services revenues were impacted by the above mentioned slow-down in the market for legacy applications including payment and IN. IPTV and OSS integration continued to grow strongly.
- Finally, Maintenance revenue grew at a mid single-digit rate this quarter.
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