Alcatel warns on earnings

After Alcatel and Lucent announced yesterday that they had ended five months of discussions concerning a possible $23 billion merger, Alcatel released more bad news in the form of an earnings warning.

In a prepared statement, Alcatel said that although its service provider business was still “proving to be robust,” weakness in European cellular handsets would cause operating income in the telecom units to decrease this year. The company expects the telecom unit to post a net loss of $2.57 billion for the second quarter, after restructuring charges and writedowns.

Alcatel said it will make several moves to “reinforce the strategic focus of Alcatel on service provider networks.” They include exiting cellular handset manufacturing through closures and outsourcing and sale of Alcatel’s enterprise business unit. A sale of Nexans, Alcatel’s cable unit, already is being pursued.

Although Alcatel expects to realize a $1.7 billon gain from the disposal program by the end of the year, it also expects to incur writedowns in connection with the moves.

Alcatel Optronics also tempered its forecast for 2001, citing “high exposure to the submarine market and the increased lack of visibility and potential delays in large projects,” said a statement by CEO Jean-Christope Giroux.

The company said top-line growth for 2001 would be 20% to 25%--down from previous estimates of 50%--and that operating margin would be 15%, or 5 percentage points less than previous projections. For the second quarter, Alcatel Optronics expects sales to show a sequential decrease. Giroux added that inventory buildups and the economic slowdown in the United States were also contributors.

“We are in the process of implementing an aggressive cost-cutting program, as well as re-examining our capacity plans on the affected product lines,” Giroux said.

In a conference call, Alcatel’s CEO Serge Tchuruk said the company would take advantage of opportunities to become a bigger player in the United States, but at this time was not “hunting” for other acquisitions.

Shares of Alcatel’s American depository receipts were off 8.5% in morning trading.