Alcatel-Lucent improves profit margins in first quarter despite US sales slowdown

Telecom equipment maker Alcatel-Lucent, which is set to be bought by larger rival Nokia, improved profit margins in the first quarter despite a marked sales slowdown in its biggest market, the United States.

Although it reported a net loss, higher software sales, a weak euro, and strong demand for its internet routing products – which help telecom operators handle heavy broadband traffic from online video – helped the French firm post a better quarter than Nokia and mobile market leader Ericsson.

Both those competitors saw steep drops in their shares after missing profit targets, and Nokia’s misstep prompted some Alcatel shareholders to say the takeover deal terms should be renegotiated.

Alcatel-Lucent chief executive Michel Combes dismissed the idea today, saying there was no need to change the deal since both companies were sticking to their annual targets.

“The strategic rationale of the deal does not depend on the performance of an isolated quarter,” he said. “There is no reason for any change.”

Alexander Peterc, analyst at Exane BNP Paribas, said the results showed a "significant divergence versus weak peers Nokia and Ericsson".

Alcatel shares were the biggest gainers on the French blue-chip CAC 40 index in early trading and closed 2.4 per cent stronger on €3.287. They had previously fallen nearly 30 per cent since the acquisition by Nokia was announced in mid-April, hit by investor scepticism about the deal.

Alcatel-Lucent’s first-quarter revenue rose 9 per cent on a comparable basis to €3.24 billion, ahead of a company-provided consensus of €3.02 billion, while adjusted operating profit nearly doubled to €82 million compared with a consensus of €79 million.

The company posted a net loss of €72 million but some measures of profitability improved because of cost cuts as well as the sale more higher margin products and software. – Reuters