Alcatel surprises market with 2Q profitability

30 Jul 2003

Shares in French telecoms equipment vendor Alcatel [NYSE: ALA] rose more than 5% to EUR8.25 yesterday after the Paris-based company reported operating profits of EUR21 million for the second quarter against a forecast loss of EUR44 million. Although revenues fell in line with expectations by 26% year-on-year to EUR3.15 billion, there was a 6% improvement on the first quarter, due mainly to increased demand from China for its fixed and mobile network infrastructure. Alcatel said a heavy cost-cutting exercise helped it return an operating profit ahead of schedule, with chief executive Serge Tchuruk predicting further gains throughout the year on the back of more reductions in staffing levels and operating working capital. Despite Alcatel’s net losses widening to EUR675 million from EUR461 million in the first quarter, this figure included EUR305 million in restructuring costs, goodwill amortisation of EUR115 million and losses from affiliates and discontinued operations of EUR104 million; the company recently booked a substantial charge in relation to the disposal of its optronics business. Alcatel, whose shares have quadrupled in value over the last year, expects income before goodwill amortisation and one-time charges to reach break even before the end of the year.