Alcatel-Lucent: Q4 and full year 2006 results

  • For the fourth quarter 2006, posts adjusted pro-forma revenues of Euro 4,421 million and operating profit(2) of Euro 21 million
  • For the full year 2006, reports adjusted pro-forma revenues of Euro 18,254 million and operating profit of Euro 1,025 million
  • As of December 31, 2006, our total cash and marketable securities was Euro 6.7 billion leaving a net cash position of Euro 508 million
  • Proposal for a dividend payment of Euro 0.16 at next Shareholders’ Meeting on June 1, 2007

Paris, France – Alcatel-Lucent’s Board of Directors (Euronext Paris and NYSE: ALU) reviewed and approved reported results for the fourth quarter and full year 2006.

EXECUTIVE COMMENTARY

“This is the first quarter that Alcatel-Lucent is reporting results as a combined company,” stated Patricia Russo, Chief Executive Officer of Alcatel-Lucent. “While the results for the fourth quarter are clearly disappointing, the positive long-term benefits of the merger and the growth potential of Alcatel-Lucent remain as envisioned. Since we began operating as a combined company on December 1, 2006, we have made progress against our integration plans, and we expect to increasingly recognize the benefits of our integration over the course of the year.

“Our newly combined company is focused on supporting the overall transformation occurring in our industry. This includes the transformation of networks to all-IP, video and multimedia content to enhance communication services, broadband mobility as well as high value services,” continued Patricia Russo.

“We have now finalized Alcatel-Lucent’s product portfolio and aligned it with these key areas as evidenced by our investments in IMS, 3G mobile networks, services, next-generation optical, as well as wireless and wireline broadband access,” added Patricia Russo. “This is a strong portfolio that we intend to leverage across fixed, mobile, converged and enterprise opportunities to grow our business and gain market share over time. In fact, we’ve recently announced contracts with Softbank Mobile in Japan to deploy a 3G UMTS/HSDPA solution and with Globacom in Nigeria to provide fixed and mobile networks as well as next generation, IP/MPLS and optical network solution.”

“Our integration plans are proceeding. We are leveraging the integration of our two companies to create a more competitive enterprise over the long term, and enhance our operating model to enable greater efficiencies in our operations,” said Patricia Russo. “We now believe the combination of our original synergy plan (Euro 1.4 billion) and additional cost reductions will enable us to realize a total of Euro 1.7 billion pre-tax cost savings within three years, with at least Euro 600 million for 2007. These savings will include among other things, the optimization of our supply chain and services, the elimination of duplicate resources and product rationalization. We believe these actions will enhance our competitiveness in this dynamic industry. As a result, we expect the impact on our global workforce will be about 12,500 positions over three years. These are difficult but necessary decisions, and we will manage these reductions with care. We are committed to serving our customers’ needs, with a competitive cost structure and effective operating model. We will maintain the appropriate workforce level to do that.”

“As we previously stated, the results for the fourth quarter were impacted by a combination of short-term uncertainty for both our customers and our people, as well as challenging market conditions, particularly in North America. While we believe these factors will be mitigated, we expect they will continue to have a more limited effect on our business in the early months of the year, leading to some revenue decline in the first quarter 2007.” stated Patricia Russo. “We are confident that we can resume revenue growth as the year progresses. Looking forward to the full year 2007, we expect revenues to increase on a percentage basis at least at the carrier market growth rate of mid single digits.”

REPORTED RESULTS

In accordance with regulatory reporting requirements, the fourth quarter 2006 reported results include Alcatel stand-alone operations for October and November 2006, and the combined operations of Alcatel-Lucent for December 2006. Businesses to be contributed to Thales are presented as discontinued activities. There were neither capital gains nor cash proceeds from the Thales transaction recognized during the quarter. Results from Nortel’s UMTS radio access business are not included as the transaction was completed on December 31, 2006. For the fourth quarter, Alcatel-Lucent’s reported revenues amounted to Euro 3,871 million and reported operating income(1) was Euro 102 million, including the impact from purchase price allocation entries of Euro (226) million. For the quarter, net income (group share) was Euro (615) million or Euro (0.37) per diluted share (USD (0.48) per ADS), which included the negative pre-tax impact of Euro (0.48) per diluted share (Euro 802 million) for restructuring charges and impairment of intangible assets.

In accordance with regulatory reporting requirements, full year 2006 reported results include Alcatel stand-alone operations from January to November 2006, and combined operations of Alcatel-Lucent for December 2006. Businesses to be contributed to Thales are presented as discontinued activities. For the full year 2006, Alcatel-Lucent’s reported revenues amounted to Euro 12,282 million and reported operating income(1) was Euro 694 million, including the impact from purchase price allocation entries of Euro (226) million. For the full year 2006, net income (group share) was Euro (176) million, or Euro (0.12) per diluted share (USD (0.16) per ADS), which included the negative pre-tax impact of Euro (0.59) per diluted share (Euro 848 million) for restructuring charges and impairment of intangible assets. As of December 31, 2006, Alcatel-Lucent’s net (debt)/cash was Euro 508 million

ADJUSTED PRO-FORMA RESULTS

In order to provide meaningful comparable information, Alcatel-Lucent is providing adjusted pro-forma financial results, in addition to reported results for the fourth quarter and full year 2006. Adjusted pro-forma results include combined operations for Alcatel-Lucent as of January 1, 2006. Businesses to be contributed to Thales are presented as discontinued activities. There were neither capital gains nor cash proceeds from the Thales transaction recognized during the quarter. Results from Nortel’s UMTS radio access business are not included as the transaction was completed on December 31, 2006. In addition, these results exclude any impact from purchase price allocation entries.

For the fourth quarter, Alcatel-Lucent’s adjusted pro-forma revenues were Euro 4,421 million, a decrease of 16% compared with revenue of Euro 5,249 million in the year-ago quarter (a decrease of 12% at constant at Euro/USD rate) and operating profit(2) was Euro 21 million, compared with an operating profit of Euro 566 million in the year-ago quarter. For the quarter, net income (group share) was Euro (618) million, or Euro (0.27) per diluted share (USD (0.35 per ADS), which included the negative impact of Euro (0.26) per diluted share (Euro (577) million) for restructuring charges and impairment of intangible assets.

For the full year 2006 Alcatel-Lucent’s adjusted pro-forma revenue was Euro 18,254 million, a decrease of 2%, compared with revenue of Euro 18,574(3) million for full year 2005, operating profit(2) was Euro 1,025 million, compared with Euro 1,411(3) million in full year 2005. For the full year 2006, net income (group share) was Euro 522 million, or Euro 0.23 per diluted share (USD 0.30 per ADS), which included the negative impact of Euro (0.28) per diluted share (Euro (626) million) for restructuring charges and asset impairment charges of intangible assets. The breakdown of revenues per region is as follows : 36% in North America, 15% in Asia, 26% in Western Europe and 23% rest of the world.

Profit & Loss – Adjusted Pro-forma Key Figures

In Euro million except for EPS

Fourth Qtr

2006

Fourth Qtr

2005

Full Year

2006

Full Year

2005

 

 

 

 

 

Revenues

4,421

5,249

18,254

18,574

Gross profit

1,409

2,012

6,745

7,358

Operating profit

21

566

1,025

1,411

Restructuring charges & impairment of intangible assets

(577)

(55)

(626)

(70)

Net income (group share)

(618)

381

522

1,674

EPS diluted (in Euro)

(0.27)

0.14

0.23

0.72

E/ADS* diluted (in USD)

(0.35)

0.18

0.30

0.94

Number of diluted shares (billion)

2.251

2.376

2.267

2.379

* E/ADS has been calculated using the US Federal Reserve Bank of New York noon euro/dollar buying rate of USD1.3197 as of December 29, 2006.

FOURTH QUARTER BUSINESS HIGHLIGHTS

Note: The following figures are based on preliminary adjusted pro-forma indications, which are subject to final representation.

Segment Breakdown

Fourth Qtr

Full Year

In Euro billion

2006

2006

(Estimated)

 

 

Revenues

 

 

Carriers

3.22

13.65

–  Wireline

1.47

5.72

– Wireless

1.24

5.79

– Convergence

0.51

2.14

Enterprise

0.41

1.46

Services

0.74

2.79

Other & Eliminations

0.05

0.35

Total

4.42

18.25

Not withstanding difficulties encountered during the fourth quarter, here are some positive highlights for each business group.

CARRIER BUSINESS

For the fourth quarter 2006, adjusted pro-forma revenue for the carrier business groups, which was estimated at Euro 3.22 billion.

Wireline

For the fourth quarter 2006, adjusted pro-forma revenue for the wireline business group was estimated at Euro 1.47 billion.

Key Highlights:

  • The transformation towards all IP networks and the sustained increase in the number of broadband subscribers continued to significantly influence fixed operators’ investments.
  • The access business registered a record quarter with 8.8 million DSL lines delivered (totaling 30.6 million lines for the full year 2006), with significant growth in the IP based DSLAM product line.
  • The IP routing activity continued its excellent growth above market rate, solidifying its established #2 position in IP/MPLS. The MS WAN business continued transitioning to Ethernet, in particular for DSL aggregation.
  • The optics business was primarily driven by both metro and long haul DWDM.

Wireless

For the fourth quarter 2006, adjusted pro-forma revenue for the wireless business group was estimated at Euro 1.24 billion.

Key Highlights:

  • The deployment of higher speed data capabilities for 3G networks continued to drive mobile operators investment.
  • The CDMA business continued its expansion into high data capabilities but was impacted by a shift in spending by some North American customers
  • The GSM infrastructure activity was impacted by a heightened competitive environment but remained solid in China. One new cost-effective, IP-based base station controller started to ship.
  • Several trials were deployed in the WiMAX Rev e technology in emerging markets

Convergence

For the fourth quarter 2006, adjusted pro-forma revenue for the convergence business group was estimated at Euro 0.51 billion.

Key Highlights:

  • The positive momentum continued in the NGN/IMS activity, with a rapidly growing installed base in China, North America and Western Europe.
  • In the multicore activity and for both mobile and fixed operators, the traditional circuit core networks continued to be replaced by packet or IP-based core networks, which now accounts for a significant portion of the business. Deployment of maintenance services and new software releases contributed to optimize the business with the existing customer base.
  • The deployment of video services at fixed operators across all regions continued to drive our IPTV applications business. The payment converged solutions for mobile operators gained traction, with 220 customers to date.

ENTERPRISE BUSINESS GROUP

For the fourth quarter 2006, adjusted pro-forma revenues for the enterprise business group were estimated at Euro 0.41 billion.

Key Highlights:

  • The voice and IP networking business reported a strong uptake in data and exceptionally strong performance across all product lines in Europe, Middle East and Africa. The IP telephony activities continued to benefit from a balanced customer mix in small, medium and large businesses and gained traction in Western Europe.
  • The leadership position of the contact center activity, Genesys, has been reinforced as the business continues repositioning from a CTI company to Dynamic Contact Center Platform company. In particular, in the voice portal business has contributed to the overall success of the business, following the two recent acquisitions. Market adoption of Open IP has helped in this effort, while continued growth in market presence in emerging economies has also been achieved (China, India, Brazil and Russia).

SERVICES BUSINESS GROUP

For the fourth quarter 2006, adjusted pro-forma revenue for the services business group was estimated at Euro 0.74 billion.

Key Highlights:

  • The services business is positively influenced by the current customers needs, either carriers or enterprises, who transform their networks to an all IP infrastructure, require maintenance services on a multi-vendor environment and require hosted management of some of their services.
  • The network integration activity was fueled by the evolution towards converged services, preparation of large network transformation plans, network optimization and QoS improvement.
  • The professional services activity benefited from large deployments of IPTV services in North America and from strong OSS/BSS activity.

(1) Operating Income/(Loss) is herein referred to as the income (loss) from operating activities before restructuring, impairment of capitalized development costs, and gain (loss) on disposal of consolidated entities.

(2) Operating Profit is herein referred to as the income (loss) from operating activities before restructuring, impairment of capitalized development costs, share-based payment, and gain (loss) on disposal of consolidated entities.

(3)To be compared with our last set of 2005 pro forma figures published on November 14, 2006 in the F-3 Form, i.e. pro forma revenues of Euro 18,569 million and pro forma operating profit of Euro 564 million. The published operating profit in F-3 Form of Euro 564 million includes charges of Euro (799) million for purchase price allocation.

The Board of Directors will propose at the Annual Shareholders Meeting on June 1st, 2007 to pay a dividend of Euro 0.16 to shareholders for 2006.

Auteur: Redactie Infrasite

Bron: Alcatel-Lucent Corporate Headquarters