Alcatel returns to profit in 2004, but weak 4th
quarter spooks investors

Agence France Presse
Thursday, February 3, 2005

PARIS (AFP) – The French telecommunication equipment maker Alcatel, a
big casualty of the high-tech shake-out, posted a net profit in 2004
for the first time for three years, but its shares slumped on weak
fourth-quarter performance.

Net profit reached 281 million euros (365 million dollars) after a
1.944-billion-euro loss reported in 2003, marking the first time the
company had turned an annual profit since the bursting of the
technology bubble.

Meanwhile, sales fell to 12.27 billion euros in 2004 from 12.5 billion
euros in 2003. But calculated on a so-called pro forma basis,
excluding the impact of its divested mobile handset, optical fiber and
power system businesses, sales rose 5.7 percent over the period.

Alcatel was severely hit by the shake-out which followed the end of
the Internet and technology boom four years ago.

Chief executive Serge Tchuruk said that the increase was even better
when calculated to smooth out variations in volatile exchange rates
last year.

“While carrier markets showed a modest recovery, Alcatel’s sales
increased by close to 10 percent at a constant euro/dollar exchange
rate,” Tchuruk said in a statement, adding: “We are confident that
Alcatel is on the right track.”

Operating profits jumped to 978 million euros from a pro forma 449
million, yiellding an operating margin of 8.0 percent.

Tchuruk said: “We will maintain our strategic direction in 2005,
closely monitoring our operations in order to reach our priority
target, which is a 10 pct operating margin.”

In the final quarter of 2004, the company turned a net profit of 40
million euros compared with a loss of 524 million euros in the same
quarter in 2003.

Sales rose to 3.812 billion euros over the period from 3.009 while
operating profit increased to 393 million euros from 334 million
euros.

But analysts were expecting a much higher net profit figure for the
fourth quarter and the outlook for this year left investors
unimpressed.

By early afternoon here Alcatel’s shares were showing a loss of 8.99
percent at 10.22 euros in heavy volume.

US brokerage Raymond James had forecast a fourth-quarter net profit of
154 million euros while Exane BNP Paribas analysts had pencilled in a
profit of 180 million euros.

Global Equities analyst Laurent Balcon said: “The fourth quarter
results and the accompanying statements need no comment”.

“The group’s growth should be limited this year and in the coming
years by an intense price war in the sector,” he added.

At press conference Tchuruk sought to dispell criticism saying, “The
fourth-quarter results are notany different than what we had indicated
to the market.”

“We could have done several percentage points more but at the price of
not enetering some emerging markets,” he said, adding: “we chose to
bet on the future”, citing Brazil, India and Russia.

Despite the return to profit last year, chief financial officer
Jean-Pascal Beufret said Alcatel would not pay a dividend for 2004
although it planned to do so in 2005 if possible.

The board decided against a pay-out this year, in order to be able to
accumulate profits and issue a “more significant” dividend at a later
date as well as aim at a “more durable” dividend policy, he said.

;u=/afp/20050203/tc_afp/francetelecomcompany_050203130610