Alcatel-Lucent narrows loss; shares surge

Alcatel-Lucent SA, the world's largest supplier of fixed-line phone networks, had its biggest gain since 2003 in Paris trading after posting a smaller-than- anticipated third-quarter loss on lower restructuring expenses.

The net loss narrowed to 40 million euros ($52.7 million) from 345 million euros a year earlier, the Paris-based company said in an e-mailed statement today. Analysts predicted a shortfall of 73 million euros, the median of seven estimates compiled by Bloomberg News.

Chief Executive Officer Ben Verwaayen, less than two months into the job, said he will offer a plan in December to restore profit. The company has lost 4.84 billion euros since Alcatel SA bought Lucent Technologies Inc. in November 2006. Verwaayen reiterated that sales for the full year will fall in the low to mid single-digit percentage range, excluding currency changes.

"What positively surprised investors is them sticking to the 2008 guidance," said Amandine Gerard, a fund manager at KBL Richelieu Gestion in Paris, which oversees $5.1 billion. "After numerous profit warnings analysts were expecting another one."

Alcatel-Lucent shares climbed 34 cents, or 20 percent, to close at 2.02 euros in Paris, the biggest gain since January 2003. The stock has dropped 59 percent this year.

"We have truckloads of things to do," Verwaayen said on a conference call with reporters. "The first thing we need to do is to ensure that we're going to restore profitability. We have to ensure that we streamline our portfolio."

Earnings were hurt by restructuring costs, writedowns in the wireless-equipment business and as U.S. clients cut spending.

Verwaayen, who will present his strategic review at the beginning of December, said the company is "in good shape" in terms of cash. Alcatel-Lucent said it has 4.46 billion euros in cash and marketable securities and less than 1 billion euros in refinancing in the next 12 months.

"Cash is king today and we are very careful, and manage our cash very tightly," Verwaayen said. "When customers need financing, we try to help them with our banking partners."

Alcatel-Lucent named former BT Group Plc head Verwaayen as CEO in September. Philippe Camus, co-managing partner of Lagardere SCA, was named non-executive chairman.

The executives replaced former Lucent CEO Patricia Russo and Alcatel Chairman Serge Tchuruk, the architects of the 2006 merger. Alcatel-Lucent's market value has tumbled 19.6 billion euros since the combination, which was aimed at fighting off competitors including Ericsson AB and Huawei Technologies Co.

Revenue fell 6.6 percent to 4.07 billion euros, while sales in the Carriers business slid 13 percent. Alcatel-Lucent gets most of its sales from its Carriers division, which makes equipment for network operators and accounted for 69 percent of second-quarter revenue.

"We've seen a slowdown in some of our products, especially in the developed markets," Verwaayen said.

One year ago, the equipment maker increased its job-cut target to 16,500, or about 20 percent of its workforce, and by the end of June the company had cut 9,000 of those jobs. Alcatel- Lucent said in February it would spend as much as 1.3 billion euros on restructuring in 2008 and 2009, with two-thirds of the expenses this year.

While at BT, the U.K.'s largest phone company, Verwaayen cut about 5,000 jobs a year to counter falling sales from land-line calls and growing competition for high-speed Internet clients.

Losses mounted in the past two years at Alcatel-Lucent amid spending cuts at customers including Sprint Nextel Corp. and price competition from Ericsson and Huawei. It also struggled to integrate different product lines in the wireless business.

Verwaayen said he would consider selling the company's 20.8 stake in Thales SA, Europe's largest defense-electronics maker. The stake was valued at 1.34 billion euros at today's closing price. Dassault Aviation SA said this month it was interested in buying the stake should it be for sale.