In the third quarter of 2009, Alcatel Lucent (ALU) reported net loss (group share) was € (182) million or (13 cents per ADS), including the negative after tax impact from Purchase Price Allocation (PPA) entries of € (39) million. This was below Zacks Consensus Estimate of loss of 4 cents per ADS.

Third quarter revenue decreased 9.3% year-over-year and 5.6% sequentially to € 3.687 billion ($5.3 billion). At constant currency exchange rates, revenue decreased 11.0% year-over-year and 3.5% sequentially. The carrier segment saw a double-digit decline in revenue, driven by 2G wireless access, TDM switching and terrestrial optics.

The segment did see moderate growth in fixed broadband access, good growth in IP and strong growth in submarine optics, fixed NGN/IMS and W-CDMA. Enterprise revenue continued to decline at a double-digit rate. Applications software revenues grew at a strong double-digit rate and Services revenues grew at a low single-digit rate.

Operating cash flow reached €739 million, as the strong sequential reduction in both accounts receivable and inventory led to a decrease in operating working capital requirement of € 430 million. Free cash flow was € 362 million, including restructuring cash outlays of € (122) million, cash interest expenses of € (41) million, contribution to pensions and OPEB of € (37) million, cash tax of € (20) million and capital expenditure of € (157) million. The net cash position improved by € 564 million, including € 195 million related to the accounting treatment of part of the 2015 convertible bond as equity.

The company continues to expect the global telecommunications equipment and related services market to be down between 8% and 12% at constant currency in 2009. The company still anticipates an adjusted operating income around break-even in 2009. To date, the company estimates that it has achieved approximately 80% of its plan to reduce costs and expenses by € 750 million on an exit run rate by the fourth quarter 2009.

On Sept. 2, 2009, Alcatel-Lucent launched an offering of bonds convertible into and/or exchangeable for new or existing shares (OCEANE) with a coupon of 5%, a strike price of € 3.23, equivalent to a conversion premium of 35%, and a redemption date of January 1st, 2015.

Alcatel-Lucent is the trusted partner of service providers, enterprises 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. Major competitor is Cisco Systems Inc (CSCO).

We currently have a Neutral recommendation on ALU.
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