Alcatel reports strong fourth quarter 2005

Fourth quarter financial highlights:
Sales up 7.6% yoy at Euro 4,094 million
Operating profit at Euro 541 million, a 13.2% operating margin
Net income (group share) at Euro 344 million, EPS at Euro 0.25
Net cash position at Euro 1.5 billion, a Euro 1.0 billion sequential
improvement

Full year financial highlights:
Sales up 7.3% at Euro 13,135 million
Operating profit at Euro 1,189 million, a 9.1% operating margin
Net income (group share) at Euro 930 million, EPS at Euro 0.68
A proposal for a dividend payment of Euro 0.16 at next Shareholders’
Meeting on June 1, 2006

Paris, France – Alcatel’s Board of Directors reviewed and approved fourth quarter and full year 2005 results.
Fourth quarter sales were up by 7.6% at Euro 4,094 million compared with
Euro 3,806 million (up 5.9% at constant Euro/Dollar exchange rate) in the
same period last year. The gross margin was 34.8%. Operating profit
amounted to Euro 541 million, a 13.2% operating margin. Net income (group
share) for the quarter was registered at Euro 344 million or a diluted EPS
of Euro 0.25 per share (USD 0.30 per ADS), which included capital gains on
operational assets of Euro 0.02 per share.

For full year 2005, sales amounted to Euro 13,135 million, a 7.3% increase
compared to 2004. At a constant Euro/Dollar exchange rate, sales increased
by 8.0%. The gross margin for full year 2005 was 35.3%. Operating profit
was registered at Euro 1,189 million, a 9.1% operating margin. Net income
(group share) amounted to Euro 930 million or a diluted EPS of Euro 0.68
per share (USD 0.80 per ADS), which included capital gains on operational
and financial assets of Euro 0.17 per share.

Serge Tchuruk, Chairman and CEO, summarized the Board’s observations:

“Alcatel has turned in a record fourth quarter, with revenues and
profitability at significant levels and a strengthened net cash position of
Euro 1.5 billion resulting from a strong free cash flow generation of Euro
0.9 billion. By mid year 2005, we saw a turnaround in our wireline
business due to the success of our triple play strategy coupled with a
breakthrough in our IP carrier data solutions. In addition, we registered
continued expansion in our wireless business fuelled by our radio multi
standard product strategy, which is well aligned with market trends, and a
very efficient R&D program. In 2005 we grew our carrier business by over
10%, outpacing the market growth. In our private business, trends were
mixed with a weakness in our satellite business while momentum grew both in
enterprise and in the vertical markets.

Our good performance in 2005 will allow Alcatel to resume remunerating its
shareholders. We are pleased to announce that the Board of Directors will
propose to pay a dividend of Euro 0.16 for 2005 at the Annual Shareholders’
Meeting on June 1st, 2006.”

Outlook

“We anticipate that the carrier market will continue to grow in the mid
single digit range for the full year 2006. The wireline market should
accelerate with the deployment of IPTV services and the transformation of
carrier networks towards IP. The wireless market growth rate will most
probably slow down compared to last year, and will be focused on emerging
market needs and new applications across all geographical regions. Rate of
growth going into the year will depend on the regulatory outcome for fiber
deployments, 3G deployments in China, and the take-up rate of IP carrier
network transformation. Enterprise IP Telephony and vertical markets
should also continue to present opportunities particularly in the
Transport, Energy and Defence sectors.

Concerning Alcatel’s business, we expect to see the good dynamics of year
end 2005 to continue into the first quarter of 2006, with year over year
revenue growth above 10%. Overall, with the currently limited visibility
beyond mid-year, we expect a lower growth rate for the second half compared
to the first half, but feel confident that our revenues should outpace the
carrier market growth for the full year 2006.

In terms of full year operating profitability, we anticipate a slight
improvement in the operating margin for full year 2006, taking into account
continuing competitive pressure in some markets. We also expect to improve
free cash flow for the full year.”

Note: The following comments are based on year on year comparisons.

Fourth Quarter Business Update

Fixed communications
Fourth quarter revenues increased by 12.3% to Euro 1,720 million compared
with Euro 1,531 million in the same period last year. Revenues were strong
in the access, optical, and IP carrier data activities. The access
division recorded a historical high in DSL volume shipments at 6.7 million
lines, bringing the cumulative total to 21.6 million lines for the full
year, a 10% increase. The IP DSLAM product family continues to grow and
represents a significant portion of lines shipped with over 60 customers
to-date. Growth in access has been driven by the DSL replacement market as
well as the increasing demand for video over the carrier network. The
increase in the optics business continues to be driven by the new submarine
projects as well as sustained demand in the terrestrial metro sector coming
from the preparation for deployment of triple play services. The IP
division turned in a very robust performance with the IP routing business
gaining significant market share with over 100 customers and 5,000 systems
shipped to-date and continued to more than offset the slight, anticipated
decline in the MSWAN ATM based technology. The NGN/IMS business continued
to record good momentum during the quarter, registering a win in Europe
with the newly launched combined fixed/mobile application server for
presence based services. The segment’s growth was partially offset by the
continuing decline in TDM voice switching.

Operating profit amounted to Euro 288 million, representing a 16.7%
operating margin, with significant contributions from all business
divisions and an especially strong performance from the access, optical and
IP carrier data businesses.

Mobile communications
Fourth quarter revenue increased by 15.2% to Euro 1,257 million compared
with Euro 1,091 million in the same period last year. Strong growth in
radio continued in hybrid 2G/3G with market share gains in the emerging
markets of Africa, the Middle East, and Southeast Asia where subscriber
demand for basic voice services remain strong. In the 3G sector, Alcatel’s
HSDPA technology has been well accepted by customers and trials are ongoing
in developed countries. The NGN/IMS mobile core business recorded a good
level of revenue during the quarter with its call server now performing
well in live high traffic conditions in North America, where a
record-setting 10 billion calls have been handled by the server. New
customers were recorded during the quarter, in particular in Russia and
Indonesia. Mobile applications continued to grow with a focus on converged
pre and post paid payment solutions and User Centric Applications (video,
music). To date, Alcatel solutions are enabling 20% of video mobile users
on a worldwide basis.

Operating profit amounted to Euro 139 million, representing an 11.1%
operating margin, with double digit margins maintained despite the
intensely competitive pricing environment.

Private communications
Fourth quarter revenue decreased by 4.8% to Euro 1,161 million compared
with Euro 1,219 million in the same period last year. Growth was robust in
the enterprise and vertical market businesses. The Enterprise activity
continued to grow its IP telephony with a particular focus on small
businesses, and particularly in Europe. The voice XML portal business
turned in a solid performance and a new company was acquired in Brazil to
support Genesys’ future momentum. Good growth was also recorded in the
transport domain for rail security and control systems. The integration
and services activity turned in a good performance, driven by new
opportunities in some vertical markets, such as transport and energy. The
satellite business decrease more than offset the growth in all other
business divisions. This decline resulted from a low 2004 order backlog
and delays in the 2005 order intake, in both commercial and institutional
space programs. During the quarter, a new Chinese commercial satellite was
booked and the official launch of the Galileo program by the European Space
Agency took place.

Operating profit amounted to Euro 117 million, representing a 10.1%
operating margin. Operating margins in the enterprise and vertical market
businesses were above the segment’s average.

Auteur: Redactie Infrasite

Bron: Alcatel