Alcatel-Lucent issues third financial warning

Alcatel-Lucent has issued a third financial warning since its merger at the beginning of 2007, forecasting breakeven profits for the third quarter.

The news appeared to worry already nervous investors, prompting a nine per cent drop in the company's share price on Friday.

Alcatel-Lucent now expects full year 2007 revenue growth to be flat to slightly up, rather than previously anticipated mid-single digit revenue growth, provided that the euro/dollar exchange rate remains constant.

The news may be surprising to some, following positive announcements from the company.

Alcatel-Lucent acquired NetDevices in May, and reported in March that it held the majority of market share in 2006 worldwide optical network hardware revenue.

Despite the underperforming results, Alcatel-Lucent continues to expect strong sequential revenue growth in the fourth quarter, driven by IP transformation, broadband deployment and associated services.

"Alcatel-Lucent is taking steps to accelerate the execution of its restructuring programme and to implement additional cost reduction plans in markets which require further action to be taken," said chief executive Patricia Russo.

"While the company acknowledges that it is competing in a challenging market and executing a complex merger, it remains confident that it has the right combination of people and assets to position the company as a leading player in the industry."

Analysts are not as positive about the company's long term future. " Yesterday's announcement laid the blame on 'a change in capital spending' among North America mobile operators," said Steven Hartley, senior analyst for telecoms at Ovum.

"Unfortunately for Alcatel-Lucent, our forecasts predict that capex among North American mobile operators will fall by one per cent between 2007 and 2012.

"Therefore, reduced customer spending is unlikely to turn around quickly and Alcatel-Lucent must be proactive in its response."

Hartley concluded that Alcatel-Lucent will have to face tough decisions in the coming months and that, although it is still too early to say that the merger has failed completely, it will have to make sure it delivers on its promises to appease investors.