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Alcatel-Lucent (ALU)
Alcatel-Lucent Reports First Ever Profit - Barely
Alcatel-Lucent was formed by a merger between the two telecommunication companies in 2006, and the merged company was thought to be a surefire success. The two companies had a natural synergy, and things should have gone smoothly. However, since the merger, the company has reported loss after loss, for nine quarters in a row. Today will surely be a memorable day in the history of the company, as it was able to finally announce its first ever profit. Investors seem relieved, but what is causing analysts to continue to be cautious?
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If you look at the earnings data, you can see why analysts are far from thrilled. The company's net profit was a mere 14 million euros (a little less than $20 million). And although this surpassed analysts' estimates of a net loss of 169 million euros, the profit was primarily due to a one-time gain of 277 million euros that came from after-tax gains from the sale of assets. Analysts had also projected an operating loss of 191 million euros, which Alcatel-Lucent wasn't able to turn into a profit, but still beat estimates by reporting a loss of 130 million euros. Sales were slightly higher than expected as well, at 3.91 billion euros.
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Alcatel-Lucent CEO Verwaayen claimed to be "seeing positive trends," and announced his belief that the company could come close to breaking even this year. Analysts remain understandably skeptical, because although the numbers slightly beat expectations, the numbers were still falling. Sales had dropped 10% from the previous year, and Verwaayen reminded investors today that the market condition is still unfavorable; other telecommunications companies would agree, as illustrated by L.M. Ericsson Telephone Company (ERIC: Charts, News, Offers) recently reporting a 61% drop in profit. Verwaayen believes that the telecommunications market will actually continue to shrink, possibly contracting another 8 to 12 percent by the end of the year.
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Verwaayen has announced his desire that by 2011, Alcatel-Lucent can be considered "a normal company," and is taking any steps possible to try to get the company back on track. Verwaayen has only been the CEO of Alcatel-Lucent since last year, but already he has been praised for being decisive, shaking things up, and pushing the company in the right direction. The company is working to determine if there are other non-essential assets it can sell, but unfortunately for the employees the other primary way to cut costs has been to eliminate jobs. The company has plans to cut over 16,000 jobs this year, and also has worked out an outsourcing deal with Hewlett-Packard (HPQ: Charts, News, Offers) which will transfer some jobs over to them.
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Right now, investors seem to be focusing only on the positive news of the day. They are excited for an unexpected profit, and are glad that the CEO seems upbeat and optimistic about the future of the company. They seem to have tuned out some of the negative news, that analysts have announced that it is "fairly certain" that the company will report another loss next quarter, and that it may take until 2011 for things to even seem somewhat normal for this company. But if CEO Verwaayen has been able to turn the company around and report even a small profit within his first year at the company, then perhaps he can accomplish some of his other dreams as well.
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Profile |
Click here to view a detailed profile of Alcatel-Lucent.
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