Alcatel-Lucent spooks market

Newly formed monster vendor Alcatel-Lucent sent a shudder through the investor community on Tuesday, when it warned of an expected drop in profits for 2006.

In morning trading, shares in the company dropped almost 11 per cent as on an adjusted pro-forma basis, Alcatel-Lucent said it expects full year 2006 revenue to be approximately Eur18.3bn, compared with Eur18.6bn in 2005. Full year operating profit is expected to be approximately Eur1.04bn, compared with Eur1.41bn in 2005.

On Tuesday the company also warned that it expects fourth quarter 2006 revenue to be approximately Eur4.42bn, compared with Eur5.25bn in same period a year ago. Fourth quarter operating profit is expected to breakeven at Eur0.57bn.

Patricia Russo, chief executive officer of Alcatel-Lucent said that the last quarter of the year “proved to be challenging from a market perspective, driven by a shift in spending from some of our large North American customers and heightened competition in the global wireless market”.

Overall, the 2006 financial results were impacted by the weak performance in the fourth quarter, Russo said.

But Russo said that “considerable progress” was made being in planning the convergence of product lines and cost cutting programs following the $11.6bn merger of the two companies and the acquisition of Nortel’s UMTS business last year.

“In the past few months, these moves created short-term uncertainty for our customers and for our people as we worked to develop the combined company’s product portfolio and new organization structure,” Russo said. “This uncertainty together with the work required to close the merger significantly impacted the business,” but “we can now more fully benefit from the impact of these major strategic moves as well as begin to achieve our future potential,” Russo added.

Alcatel-Lucent said it now expect to achieve combined cost savings of at least Eur600m in 2007, which is Eur200m higher than the initial target.