Weak Global Econcomy & Slow Business in China Has Negative Impact on Alcatel-Lucent and ZTE

Alcatel-Lucent underlined the bleak outlook for itself and much of the telecoms equipment sector by disclosing second-quarter operating losses of €40m and abandoning yearly profit targets. The company cited a “slower than expected business mix improvement”. Alcatel-Lucent also said that while it expects the second half of the year to be better than the first, it will not now meet its previously-announced adjusted operating margin guidance for 2012. It noted a “difficult macro-economic environment”.

According to Odon de Laporte, an analyst at Credit Agricole Cheuvreux cited by Bloomberg, the company has also been impacted by slow business in China. During the first quarter, the company noted “extremely weak” sales of GSM equipment in China, due to the timings of the sales cycle.


Financial Times offerered an even bleaker assessment for Alcatel-Lucent prospects this year:


Update on Alcatel-Lucent– 26 July 2012:

Alcatel-Lucent reported a net loss for its second quarter and announced that it is planning to reduce its headcount by 5,000 in an effort to further cut costs. The results make it the latest infrastructure vendor to suffer at the hands of the economic downturn, along with Ericsson and Huawei.

The company reported a net loss of EUR254 million for the second quarter on the back of revenue of EUR3.55 billion. The loss was particularly severe when the previous quarter’s EUR398 million net profit is taken into account.

Revenue was down 7.1 percent from EUR3.82 billion reported in Q2 2011 but up 10.6 percent from the previous quarter’s EUR3.21 billion.

Revenue for the wireless network business was EUR877 million, up 11.3 percent from the previous quarter’s EUR788 million but down 18.7 percent compared to EUR1.08 billion for the same quarter in 2011. The decline in wireless revenue over the past year was attributed to “moderate or delayed spending of service providers” on 2G and 3G technologies. However, the company’s LTE business more than tripled its revenue during the course of the year.

North America and Europe provided the bulk of the company’s total revenue during the period but have declined 8.3 percent and 15.6 percent respectively compared to a year ago. The only region to have increased revenue in the past 12 months is the rest of the world with Central and Latin America recording a seventh consecutive quarter of double digit growth. All geographies were up compared to the previous quarter.

Alcatel-Lucent CEO Ben Verwaayen said the second quarter performance confirms the company’s strong position in “many attractive market segments” such as IP, next-generation opticss and broadband access, but also the effects of the global economic situation. Verwaayen’s ommision of ‘mobile’ from the company’s list of strong markets reflects how Alcatel-Lucent is facing serious competition in the wireless sector.

Verwaayen added: “It is clear from the deteriorating macro environment and the competitive pricing environment in certain regions challenging profitability that we must embark on a more aggressive transformation.” To that end, the infrastructure vendor has launched “The Performance Program” to achieve a further EUR750 million cost reduction to bring total savings to EUR1.25 billion by the end of 2013. The plan includes the reduction of 5,000 roles in the organisation and the exit or restructuring of unprofitable managed services contracts and markets. “These times demand firm actions,” Verwaayen said.

The company has previously reduced costs through rationalising its product portfolio, co-sourcing, reducing cost structure and managing working capital more effectively. The company is targeting a strong positive net cash position by the end of 2012.   http://www.mobilebusinessbriefing.com/articles/alcalu-swings-to-q2-loss-announces-5-000-job-cuts/24737?elq=b0087be5d8994e1ea01991708af665c9

LightReading:   “These times demand firm actions,” stated CEO Ben Verwaayen in today’s earnings press release.

In addition to cutting jobs, AlcaLu intends to exit or renegotiate unprofitable managed services deals and quit unprofitable geographic markets. No mention was made of winding down or selling off product lines.

As part of the program AlcaLu is also looking to capitalize on its intellectual property and is setting up its patent portfolio as an independent profit center.

The cost-cutting plan wasn’t enough to appease investors, as AlcaLu’s share price on the Paris exchange fell by 5.4 percent in early trading Thursday morning to €0.83, giving the company a market value of just €1.9 billion ($2.3 billion).


And now let’s look at ZTE,  whose Shenzhen-listed shares closed down sharply after its recent earnings report. The Shenzhen-based firm said late Friday that its net profit would total 154 million to 308 million yuan ($24.4 million to $48.9 milliion) in the first half of 2012, dropping 60 to 80 percent year-on-year from 769 million yuan in 2011.

ZTE attributed the profit decline to considerable investment returns in the first half of 2011, foreign exchange losses and order postponement by domestic telecom operators.

“Our performance in major businesses is better in 2012 than the previous year,” Dai Shu, spokesperson of ZTE China, told the Global Times Tuesday. “If we deduct the 900 million yuan earnings by selling Nationz Technologies Inc’s shares in 2011 and 150 to 200 million yuan foreign exchange losses resulting from the eurozone crisis.”

ZTE would grow faster than the average growth of the industry in 2012, Dai projected, noting that the company would release its semiannual report in August.  However, the firm has to face worsening market environment and industrial bottlenecks, analysts said.  Dragged by the global economic downturn, telecom operators around the world postponed their projects and investments, and the trend is unlikely to reverse in the short term, said analyst Chen Yunhong from Sinolink Securities. 

Technology research firm Gartner predicted that the global telecom sector would see 2 percent expansion in 2012. 
Media reports said many ZTE staff have been recalled from overseas postings since early this year and further job cuts would be announced within the year.