PARIS--Telecommunications-equipment maker Alcatel-Lucent SA
boosted its gross margin in the first quarter, but slow spending by
big U.S. telecoms companies pushed it to another year-over-year
loss, highlighting the promise and the peril Nokia Corp. faces as
part of its EUR15.6 billion ($17.7 billion) takeover bid for the
Franco-American firm.
The money-losing Paris-based maker of wireless network gear and
Internet-routing equipment on Thursday reported a net loss of EUR72
million, or 3 cents a share, compared with a net loss of EUR73
million, or 3 cents a share, a year earlier.
Alcatel-Lucent's adjusted operating income more than doubled to
EUR88 million from EUR33 million a year earlier, roughly in line
with analysts' expectations, as the company improved its gross
margin to 34.6% from 32.3% a year earlier by selling more software
compared with hardware, and on continued cost-cutting.
The company continued to burn cash, reporting a EUR332 million
free cash flow loss in the first quarter, compared with a free cash
flow loss of EUR398 million a year earlier. But Chief Executive
Michel Combes reiterated his commitment that Alcatel-Lucent will
show its first-ever full year of positive free cash flow in
2015.
"In a challenging environment and in particular a slow spending
environment in North America, Alcatel-Lucent was able to increase
its margin," Mr. Combes told reporters.
The results underscore the challenges and the benefits Nokia
could reap if it completes its bid to take over Alcatel-Lucent.
Both companies have been through rounds of brutal cost-cutting,
which helped push Nokia's equipment arm back to profit, but has yet
to do so at Alcatel-Lucent. Since it was created in 2006,
Alcatel-Lucent has had negative free cash flow on a yearly
basis.
Still, Nokia could use Alcatel-Lucent as it looks to expand more
deeply into the U.S. market. Moreover, the Finnish company posted
disappointing margin figures for the first quarter, leading to
earnings well below expectations. By contrast, Alcatel-Lucent's
rising gross margin came from growing software sales and general
improvements in profitability, the company said.
The rising dollar pushed Alcatel-Lucent's revenue up 9.2% to
EUR3.24 billion for the quarter, but at constant rates the firm's
revenue was actually down 4%, Alcatel-Lucent said. Slowing sales in
the U.S. market, home to two of its biggest clients, Verizon
Communications Inc. and AT&T Inc. was largely to blame, offset
by increasing sales in an improving European market and in Asia.
Created from the merger of France's Alcatel and the U.S.'s Lucent,
the company still has significant dollar costs for its U.S.
operations.
The company's star Internet-routing unit, which has been an
engine of growth, turned into a drag this quarter, as slow spending
in the U.S., and Japan, on its routing gear pushed revenue down 6%
in year on year terms--and given the strong dollar also pushed down
the company's euro-denominated profit on the U.S.-centric
division.
Alcatel-Lucent's troubled wireless-networking business was a
bright spot, with flat revenue in constant-currency terms, with
rollouts of high-speed LTE networks in China were offset by
weakness in the U.S.
Write to Sam Schechner at sam.schechner@wsj.com
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