UK telecoms equipment manufacturer Marconi Corp reported a narrower operating loss and stable sales for the three months to 30 June 2004 helped by cost cuts, but its share price still plummeted by 9.8% after the troubled company failed to provide clear guidance on when it expects to become profitable. Marconi, which nearly went bankrupt after over-extending its reach during the telecoms bubble of the late 1990s, said its net loss for the period narrowed to GBP36 million (USD66 million) from GBP88 million for the same period of 2003, while underlying operating losses, excluding exceptional items and goodwill amortisation, shrank to GBP3 million from GBP45 million in 2003. Moreover, pre-tax losses of GBP39 million compared favourably with a loss of GBP105 million, as customers increased spending on next-generation technology equipment. Marconi said its first-quarter sales reached GBP289 million, down from GBP291 million a year ago and GBP329 million the previous quarter, but on a constant currency basis, turnover was up 3% and was broadly in line with the typical seasonal spending profile of its major customers. Marconi also reaffirmed its guidance of achieving ‘low single-digit annual sales growth’ in the current fiscal year and reported a stabilisation in telecoms equipment and services, particularly in its key European markets. Marconi made 78% of its revenues in Europe, the Middle East and Africa and 13% in North America.
The company’s share price plunged by as much as GBP0.60 to GBP5.50 on the London stock exchange after it failed to provide clarity on when it expects to re-enter the black. Pavi Binning, Marconi’s CFO, would only confirm that achieving pre-tax profits was the firm’s next key objective and that the company was targeting higher gross margins. The adjusted margin dipped to 32.2% in Q1, down from 34.3% the previous quarter, but up from 25.4% in the year-ago period.
Marconi hopes its future will lie in supplying network gear for high speed internet services and new technology to mobile operators looking to upgrade their infrastructure. Telecoms heavyweights such as BT Group, which accounts for a significant portion of Marconi’s sales, have begun buying equipment again after many years of capital expenditure cuts which spelled disaster for the likes of Marconi, Nortel Networks and Alcatel. According to Marconi chief executive Mike Parton, ’there is evidence that customers are increasingly making plans for next generation products’. Marconi recently put an end to 18 months of declining sales and major contracts with the likes of Telstra and Telecom Italia for third-generation technology have contributed to the improvement. The vendor also recently completed a GBP4.7 billion debt-for-equity restructuring that put it on a more stable footing, in a move that handed control of the new company to its banks and bondholders. The company still has a long way to go, however, and the ongoing problem of lack of profitability is continuing to drain the company’s share price. Nonetheless, the latest set of financials and improvements in underlying indicators suggest that it is on the right track.