Alcatel-Lucent (ALU) reported earnings from continuing operations of 5 cents per share for the fourth quarter of 2009, below the Zacks Consensus Estimate of 9 cents.
Fourth quarter revenue decreased 19.9% year-over-year, but increased 7.6% sequentially to €3.967 billion. At constant currency exchange rates, revenue decreased 16.8% year-over-year and rose 9.1% sequentially. The carrier segment saw a double-digit decline in revenue, driven by 2G wireless access, TDM switching, terrestrial optics and broadband access.
The segment did see slight growth in Submarine, good growth in IP and double-digit growth in W-CDMA. Enterprise revenue declined at a more moderate rate this quarter due to the recovery of Industrial Components. Applications software revenue grew at a mid single-digit rate and finally Services revenue grew slightly.
Fourth quarter adjusted operating income of €271 million contributed 6.8% of revenue. Adjusted gross margin came in at 36.7% of revenue for the quarter, compared to 33.3% in the year ago quarter and 33.4% in the third quarter 2009. Excluding the two one-time items booked in the year ago quarter (net impact of a negative 50bp) gross margin rose 2.9 percentage points year over year and 3.2 percentage points sequentially.
This strong improvement reflects a more favorable geographic/product mix, ongoing cost reduction initiatives in fixed operations, procurement and product design and on a year- over-year basis – the weakening of the US dollar versus the Euro.
Operating cash flow reached €635 million which reflects the higher level of adjusted operating income in the fourth quarter as well as an additional reduction in working capital and other assets and liabilities of €228 million. Free cash flow was €173 million, including restructuring cash outlays of €(157) million, cash interest expense of €(17) million, contribution to pensions and OPEB of €(67) million, cash tax of €(27) million and capital expenditure of €(194) million. The net (debt)/cash position improved by €294 million, including €128 million related to the sale of the motors and drives activity.
Segment Results
For the fourth quarter 2009, revenues for the Carrier segment were €2.242 billion, a decrease of 28.3% compared to €3.129 billion in the year-ago quarter and an increase of 0.5% compared to €2.231 billion in the third quarter 2009. At constant currency exchange rates, Carrier revenues decreased 25.3% year-over-year and grew 2.4% sequentially.
For the fourth quarter 2009, revenues for the Applications software segment were €334 million, an increase of 1.5% compared to €329 million in the year-ago quarter and an increase of 16.8% compared to €286 million in the third quarter 2009. At constant currency exchange rates, Applications software revenues grew 5.7% year-over-year and increased 18.8% sequentially.
For the fourth quarter 2009, revenues for the Enterprise segment were €283 million, a decrease of 11.0% compared to €318 million in the year-ago quarter and an increase of 13.2% compared to €250 million in the third quarter 2009. At constant currency exchange rates, Enterprise revenues decreased 9.4% year-over-year and grew 13.2% sequentially.
For the fourth quarter 2009, revenues for the Services segment were €1,030 million, a decrease of 0.5% compared to €1,035 million in the year-ago quarter and an increase of 18.5% compared to €869 million in the third quarter 2009. At constant currency exchange rates, Services revenues increased 0.8% year-over-year and 19.2% sequentially.
As of the fourth quarter 2009 and on an annualized exit run rate, Alcatel-Lucent has reduced its cost and expense structure by approximately Euro 950 million at constant currency, of which approximately 40% was in COGS (including fixed operations, product and procurement costs), 25% in R&D and 35% in SG&A (including selling & marketing, general & administrative costs).
Guidance
For 2010, Alcatel-Lucent continues to expect nominal growth (between 0% and 5%) for the telecommunications equipment and related services market. For 2010, Alcatel-Lucent aims to reach an adjusted operating margin in the low to mid single-digit (between 1% and 5%). For 2011, Alcatel-Lucent continues to aspire to achieve an adjusted operating margin in the mid to high single-digit (between 5% and 9%), depending on market growth.
Alcatel-Lucent is the trusted transformation partner of service providers, enterprises, strategic sectors such as defense, energy, healthcare, transportation, and governments worldwide, providing solutions to deliver voice, data and video communication services to end-users. A leader in fixed, mobile and converged broadband networking, IP technologies, applications and services, Alcatel-Lucent leverages the unrivalled technical and scientific expertise of Bell Labs, one of the largest innovation powerhouses in the communications industry.
We currently have a Neutral recommendation on ALU.
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