Alcatel to Gain Shares as Sales Growth Slows in 2001
(Update4)
By Jad Mouawad
Paris, Jan. 31 (Bloomberg) -- Alcatel SA, Europe's second- biggest phone-equipment maker,
said it expects to gain market share from rivals this year even as profit and sales growth slow
as U.S. phone companies reduce spending.
Sales will rise 20 to 25 percent this year, down from an earlier forecast of 25 percent, Chief
Executive Serge Tchuruk said during a conference call. Operating profit will rise twice as fast
as sales, he said.
Phone companies are delaying buying new equipment as they focus on cutting debt and amid
a slowdown in the U.S. economy. Ericsson AB, No. 1 in Europe, lowered its outlook for 2001
sales to as low as 15 percent last week. Lucent Technologies Inc., the world leader, is cutting
16,000 jobs to return to profit. Alcatel said growth in Europe, its biggest market, would match
last year.
``They are confirming the sector's outlook but that's not necessarily bad for them,'' said Lionel
Antoinat, who helps manage about 1.5 billion euros including Alcatel shares at ING Investment
Management in Paris. ``In a slowing market, Alcatel will be among those that win market share.''
U.S. Slowdown
Shares of Alcatel, which gets less than a quarter of sales from the U.S. and more than half from
Europe, rose as much as 4.4 euros, or 7.5 percent, to 63.5, valuing the company at 76.9 billion
euros.
Alcatel also got a lift from a forecast that it would double sales of equipment that allows rapid
Internet connections through conventional copper telephone wires and increase cellular phone
sales by a quarter to 25 million this year. Per-share earnings will increase 30 to 40 percent in
2001, the company said.
The stock had fallen 13 percent in the past four trading days as Ericsson, Lucent, Nokia Oyj,
the world's biggest mobile-phone maker, and JDS Uniphase Corp., the biggest maker of parts
used in fiber-optic equipment, all forecast slower growth.
Alcatel shares trade at 33 times estimated 2001 earnings, compared with 53 times estimated
earnings for Nortel and 73 times for JDS. Ericsson shares trade at 31 times estimated earnings.
Siemens, Germany's largest electronics and engineering company, today reiterated its forecast
for slower growth during the year. Its stock rose 1.25 euros to 152.55 in recent trading.
Tchuruk
Since taking over in 1995, Tchuruk, 63, has pushed the former state-owned conglomerate,
whose businesses ranged from car batteries to high-speed trains, to focus on
telecommunications. Alcatel, founded in 1898 as the Compagnie Generale d'Electricite, has
spent $16 billion on acquisitions since 1998 to target faster growing businesses, including
optical components, high-speed transmission gear and undersea telecommunications
networks.
Tchuruk has also increased Alcatel's market presence in the U.S. Its purchase of Canada's
Newbridge Network Corp. in May gave Alcatel phone switches that deliver voice, data and
video on a single network, a market where it lagged No. 1 Lucent and Nortel.
The revised forecast came as Alcatel said fourth-quarter profit rose 26 percent to 426 million
euros ($395 million), or 0.36 euro a share, beating analysts' expectations. That compares with
338 million, or 0.36, in the year-earlier quarter. Sales rose 26 percent to 9.69 billion euros.
Analysts expect the dip in investments by phone companies to last through the first half this
year as companies work through their inventories, but say sales will pick up after that.
``Since October, we have witnessed a slowdown, mainly in the U.S.,'' said Chief Financial
Officer Jean-Pierre Halbron said in a phone conference with journalists. ``There's zero growth
in the U.S. and secondly, the financial sector is hesitating to finance phone operators, meaning
they have a tendency to spend less.''
`Crystal Ball'
Halbron said he also expects spending to resume in the second half, although he added that
he doesn't have a ``crystal ball.''
``It's a mixed feeling,'' said Laurent Balcon, an analyst at Global Equities in Paris who
recommends investors buy Alcatel shares. ``On one hand they say sales is slowing, and on
the other they're improving profitability. Overall, it's neutral.''
Ericsson, whose biggest unit makes equipment for mobile and traditional phone networks,
sees total sales rising between 15 percent and 20 percent this year. Sales at the handset
business alone will be little changed, the Swedish company said last week.
Slowing spending has curtailed growth in the fiber-optics market, one of the fastest-growing
areas of the industry. Optical components boost phone and Internet traffic.
JDS said last week its second-quarter loss widened because customers cut inventories.
Nortel Networks Corp., the biggest maker of fiber-optic equipment, earlier this month reduced
its growth forecast to 30 percent this year from as much as 35 percent previously. The
Canadian company blamed the economic slowdown in the U.S., not customer interest, for the
lowered expectations.
Sales at Alcatel's Optronics unit, which makes lasers and filters, more than doubled to 146.1
million euros and net income rose 52 percent to 17 million euros. The company confirmed sales
growth would rise between 60 to 65 percent this year.
In October, Alcatel sold shares that track the performance of Optronics, Europe's biggest
maker of parts that increase the amount of traffic a fiber-optic network can carry, raising 1.4
billion euros. The tracking shares have fallen 35 percent since they began trading.
Optronics shares rose as much as 9.25 percent to 57.9 euros. |
