Alcatel-Lucent’s core CDMA business takes a dive

North America was not kind to Alcatel-Lucent this last quarter. The vendor’s core CDMA division took a big hit as capex spending from a key unnamed North American customer fell off, widening the company’s loss to $1.7 billion.

Alcatel-Lucent’s earnings call was a surprise on many fronts. Not only did it surprise Wall Street with the scope of its 2^nd quarter loss, but it announced the departure of CEO Patricia Russo and board chairman Serge Tchuruk. Tchuruk is stepping down immediately while Russo said she would continue to run the company until the board finds a replacement.

The losses in the CDMA market led to 3% drop in revenues in Alcatel-Lucent’s core carrier networks group even though gains in Wideband CDMA sales offset some of their impact. Alcatel-Lucent didn’t name the specific customer, but Skyline Marketing president John Celentano said the customer is most likely Sprint. Only two North American CDMA operators have the scope to impact the vendor’s revenues so drastically in a single quarter, Sprint and Verizon Wireless, Celentano said. Verizon, however, continues to hold the line with capital spending despite the downturned economy, Celentano said, while Sprint is in the midst of a financial and operational recovery.

“Sprint hasn’t reported earnings yet, but with all that its going through it’s the logical to assume it’s the operator,” Celentano said. “That’s speculation, but its informed speculation.”

Sprint is only major operator whose customer has shrunken, giving it less need to expand its network, Celentano said, but the operator is also now investing in its next-generation WiMAX network through its future joint venture with Clearwire. Given its recent financial problems, Sprint is more apt to sacrifice spending on the CDMA network, Celentano said.

In Alcatel-Lucent’s earnings call, Russo sought to dispel any notions that today’s results spelled doom for its largest product line. While sales took a dramatic dip in North America, there are signs that Asia will fill the gap, she said.