Alcatel-Lucent posts eighth-straight loss

Alcatel-Lucent SA, the world's largest supplier of fixed-line phone networks, posted an eighth straight quarterly loss as it wrote down the value of assets by a record 3.91 billion euros ($5.1 billion).

The fourth-quarter net loss widened to 3.89 billion euros from 2.58 billion euros a year earlier, Paris-based Alcatel- Lucent said in a statement. Analysts, whose estimates didn't include a writedown, predicted a profit of 158.6 million euros, the average of 10 estimates compiled by Bloomberg.

Today's report brings the equipment maker's writedowns to about 8 billion euros since Alcatel SA bought Lucent Technologies Inc. in 2006 as demand slumped and stock markets plunged. Rival Nortel Networks Corp. sought bankruptcy protection last month after almost $7 billion of losses since 2005.

"We have taken a substantial impairment charge which I think reflects the deterioration in the marketplace and also the change in our strategy," Chief Executive Officer Ben Verwaayen said on a conference call with journalists. "It's a big number."

Sales fell 5.3 percent to 4.95 billion euros. Analysts predicted 4.8 billion euros, the average of 17 estimates. Excluding the writedown and adjusted for merger-related items, Alcatel-Lucent posted an operating profit of 297 million euros.

Shares Rise

Alcatel-Lucent rose 6.5 cents, or 4.4 percent, to 1.53 euros at 2 p.m. in Paris trading. The stock has slumped 65 percent in the past year, cutting the company's market value to 3.54 billion euros.

Verwaayen and Chairman Philippe Camus in September replaced Patricia Russo and Serge Tchuruk, the architects of the 2006 merger who failed to establish a profitable company and oversaw a 13.5-billion-euro drop in market value.

"The market chooses to focus on the positive aspects," said Amandine Gerard, a fund manager at Richelieu Finance in Paris. "The general context remains tense. The arrival of the new management could provide a fresh breath of air."

Alcatel-Lucent wrote down the value of goodwill, the balance sheet item that reflects the premium paid in a takeover, and other intangible assets. The writedowns involved the mobile technology known as code division multiple access, as well as outdated software products, Chief Financial Officer Paul Tufano said on the call.

"If you look at the amount of our goodwill in our books, it is still above the market capitalization," he said.

‘Hefty' Writedown

Lucent was the market leader in CDMA when it was acquired by Alcatel. The combined company's writedowns include 2.52 billion euros in the fourth quarter of 2007 and 810 million euros in the second quarter of 2008.

While quarterly sales beat estimates, "the goodwill writedown is rather hefty all the same, and another negative point are the pension funds, which are in negative territory," said Vincent Maulay, an analyst at Oddo Securities. He has an "add" rating on the shares.

The new management team said in December it would cut 1 billion euros in costs in each of the next two years, including 1,000 managerial jobs, bringing total planned job cuts since the merger to 17,500. The company also said it would eliminate 5,000 contractors.

Alcatel-Lucent today reiterated its forecast for 2009 operating profit, adjusted for merger-related items, to be around breakeven. Fourth-quarter sales of equipment that phone companies use to hook up new customers declined more than 10 percent, the company said.

Research Spending

The company will focus its research and development on optical, Internet protocol, next-generation wireless, broadband and applications areas, while reducing spending on technologies such as earlier versions of CDMA, Verwaayen has said.

Dassault Aviation SA in December agreed to buy Alcatel- Lucent's 20.78 percent stake in Thales SA for about 1.57 billion euros.

The company has "adequate liquidity" and expects to receive the proceeds from the Thales sale by the end of June, Tufano said in an interview. "We don't see any need for a rights offering or any capital raise this year or going into next year," Tufano said.

Asked on a conference call with analysts if the company was interested in acquiring Nortel assets, Verwaayen said, "We are not going to have any big M&A plans going forward. We are going to execute our plans."

Market Forecast

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

The market for telecommunications equipment will slump 8 percent to 12 percent at constant exchange rates this year, Alcatel-Lucent said today, repeating a December prediction.

Alcatel-Lucent's market forecast is more pessimistic than that of rivals. Nokia Siemens Networks last month repeated a prediction for spending on phone equipment and services to fall 5 percent or more in euro terms this year. In November, Ericsson, the largest maker of wireless phone networks, said that demand will be "flattish."

Ericsson didn't reiterate that forecast last month, when it said it will lower its dividend and cut about 5,000 more jobs in anticipation of lower spending by phone companies this year.