Alcatel’s Earnings Exceed Expectations, Shares Gain

Bloomberg.com
July 12, 2005

Alcatel SA, the world’s biggest broadband equipment supplier, said sales
and earnings rose more than the company expected in the second quarter,
lifted by demand for Internet-related and wireless phone products.

Sales rose 8 percent to 3.14 billion euros ($3.8 billion), instead of
the predicted 2 percent to 3 percent increase, the Paris-based company
said in a faxed statement today. Operating profit was about 251 million
euros, or more than 8 percent of sales, Alcatel said. The shares climbed
6.5 percent, the biggest gain in more than eight months.

“For once we have a good surprise from Alcatel, which isn’t doing as
badly as we thought,” said Andre Chassagnol, head of research at
Paresco Futures in Paris.

The gain in profitability brings Alcatel, under Chief Executive Serge
Tchuruk, closer to its goal of 10 percent operating margin for the full
year. The company disappointed investors in the first quarter with an
operating margin of 4.1 percent. Tchuruk, facing competition from
companies including Cisco Systems Inc., has sold units and cut more than
40,000 jobs, returning Alcatel to profit in 2004 after three years of
losses.

Shares of Alcatel rose 60 cents to 9.80 euros in Paris, the biggest gain
since Oct. 21. Still, Alcatel stock has declined 13.8 percent this year,
compared with a 12.9 percent increase in France’s CAC 40 index. Since
the beginning of 2000, the stock is down 78 percent, compared with a 25
percent drop in the CAC 40.

Shares of Cisco, the world’s biggest maker of computer networking
equipment, have gained 1.9 percent this year, compared with a 0.5
percent increase in the Standard & Poor’s 500 index.

Increasing Margin

Second-quarter earnings totaled about 13 euro cents per share, lifted by
a tax gain and a “one time capital gain” linked to the sale of an
unspecified investment in central Europe, Finance Director Jean-Pascal
Beaufret said on a conference call. More details of second-quarter
earnings will be provided in a full presentation July 28, he said.

Beaufret said the 8 percent margin in the second-quarter was a “little
bit higher” than expected and the margin would rise in the second half,
boosted particularly in the fourth quarter.

“The results are at the top end of what Alcatel was forecasting for the
year as a whole,” said Franck Hennin, who helps manage $2.2 billion in
assets at Richelieu Finance in Paris. “Its business is quite cyclical
and the second half is better for margins,” he said.

Margin Targin

The company said April 28 that profitability had been hurt by costs of
marketing new mobile-network equipment and the expense of currency
hedges. Alcatel today reiterated its goal of a 10 percent operating
margin for the full year.

Alcatel’s first-quarter operating income rose 27 percent to 107 million
euros from 84 million euros a year earlier. Revenue rose 3.7 percent in
the first quarter to 2.61 billion euros from 2.52 billion a year earlier.

First-quarter net income fell 55 percent to 124 million euros, or 9
cents a share, from 278 million euros, or 20 cents, a year earlier. Last
year’s first-quarter net income included the effect of the sale of
battery maker Saft. Alcatel sold the unit in January 2004 to Doughty
Hanson & Co. for 390 million euros.

Tchuruk, 67, trimmed Alcatel’s workforce by 8 percent last year to about
56,000 at the end of 2004.

To contact the reporter on this story:
Benedikt Kammel in Berlin at bkammel@bloomberg.net
or
Simon Packard in Paris packard@bloomberg.net

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