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Alcatel-Lucent $52M loss: What is Ben Verwaayen’s new Plan

By Amarendra Bhushan for CEOWORLD Magazine Updated:October 31, 2008

Newly appointed CEO Ben Verwaayen is happy to be onboard, but said that company profitability “remains unsatisfactory,” especially in the carrier space, where revenue declined 9.4%, at a constant exchange rate and on a year-over-year basis.

Alcatel-Lucent today announced that Ms. Linnet F. Deily, M. Robert E. Denham and M. Karl J. Krapek have resigned from the company’s Board of Directors. Their departure is in line with the communication made on July 29th, 2008 concerning the Board’s reorganization, when the company has determined to reduce the size of the Board’s membership over time while adding several new members with strong industry expertise. M. Jean-Pierre Halbron’s departure, which has been announced on September 17, has also taken effect after the close of the Board meeting held yesterday.

Third Quarter 2008 Revenue in Line with Guidance – Full Year 2008 Outlook

Key highlights for the quarter

Revenues of Euro 4.065 billion, down 0.9% sequentially
Adjusted2 gross profit of Euro 1.320 billion or 32.5% of revenues (33.0% excl. one time item)
Adjusted2 operating income1 of Euro 40 million or 1.0% of revenues
Adjusted2 net income (group share) of Euro 41 million or Euro 0.02 per diluted share
Reported net loss (group share) of Euro (40) million or Euro (0.02) per diluted share
Net debt of Euro (600) million at September 30, 2008
Funded status of pensions and OPEB shows surplus of Euro 2.997 billion at September 30, 2008

Ben Verwaayen, CEO commented: “I am delighted to have joined Alcatel-Lucent, a company which has the talent, technologies and customer base to grow profitably in its market.

First, let me state that we are in good shape from a cash standpoint. We achieved a positive cash flow from operating activities this quarter through the reduction of our operating working capital requirements. The funded status of our pensions and other post retirement benefits remains materially positive with a prudent asset allocation. With gross cash on hand and marketable securities of Euro 4.46 billion and less than Euro 1 billion worth of bond debt maturing in the next 12 months, we are adequately funded.

Second, we met our revenue guidance in a more challenging macroeconomic environment. In addition to the ongoing CDMA decline, we saw a reduction in spending by certain customers in developed markets, especially in fixed access and terrestrial optics. This was partly offset, however, by the strong performance of certain carrier activities, including W-CDMA, NGN and submarine networks. In addition, we continued to grow our Enterprise business at a healthy rate and saw accelerated growth in Services.

Having said that, our profitability remains unsatisfactory. The gross margin came in at the lower end of our expectations in the third quarter, reflecting an adverse shift in both our product and geographic mixes. In the carrier space, this was coupled to a declining top-line and led to an adjusted operating loss which calls for a set of actions that I will be describing over the coming period. I would nonetheless point to the high single-digit operating margin in the Enterprise segment and the double-digit operating margin in Services”.

In another news, Japanese mobile network operator Willcom has selected Alcatel-Lucent’s next-generation IP service router portfolio as the foundation for its wireless IP network. Alcatel-Lucent partnered with Itochu Techno Solutions for the testing and deployment phase of the project.

Yoshiki Chika, director and executive vice president at Willcom, said: “We have selected Alcatel-Lucent because its solution will enable us to drive future network trends and introduce new features on our scalable IP core and edge network layers, catering to the anticipated huge bandwidth growth demand in the market.”

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