Alcatel Q2 seen spelling bleak 2001
Tuesday July 24, 11:40 am Eastern Time
By William Emmanuel and Catherine Bremer
PARIS, July 24 (Reuters) - Alcatel investors, who have clung on this year through a profit warning, lower sales forecasts and a ditched merger, will be praying for no surprises when the telecoms equipment maker reports quarterly results on Thursday.
However, most analysts are braced for another downward revision to the company's 2001 outlook, given few signs of an improvement in the beleagured telecoms industry that is plagued by overcapacity and feeble demand from operators.
``There's still evidence of pricing pressure and for Alcatel I doubt the worst is over. The low point is likely to come nearer the end of the year, around the third quarter,'' said Douglas Smith, an analyst at CSFB. ``I would tend to think earnings estimates would go lower.''
While poor mobile and corporate network sales have long been expected, analysts are becoming concerned about other sectors such as submarine and terrestrial optic networks and price pressure for high-speed digital subscriber lines (DSL).
Shares in Alcatel have slumped 82 percent from a peak of 97.15 euros in September 2000, and have underperformed the DJ Stoxx technology index by 58 percent since then.
DIFFICULT TIMES
Alcatel's release will come soon after rivals Lucent Technologies Inc. (NYSE:LU - news) and Britain's Marconi (quote from Yahoo! UK & Ireland: MONI.L) increased the number of jobs they aim to axe to cope with a slowdown in demand.
In a Reuters poll of nine analysts, forecasts for second quarter operating profit ranged from 105 to 156 million euros, down from 638 million euros a year earlier. The numbers include Alcatel's former cable unit Nexans , listed last month.
Stripping out Nexans, in which Alcatel now only holds 20 percent, to leave Alcatel as a pure telecoms player, the forecasts ranged from 60 million to 120 million euros, down from 584 million in the same period of 2000.
Alcatel said in May that second-quarter operating profit would be ``above'' 100 million euros, but warned it would post a net loss of around three billion euros after restructuring charges, inventory depreciation and other one-off costs.
The company has also it expects a dip in 2001 operating income and only slightly higher turnover. It hopes to make about two billion euros by the end of the year from asset sales, and raised 450 million euros from the Nexans flotation, but some still fear it might post a full-year loss.
REMEMBER LAST SUMMER
Like those of its peers, Alcatel's figures paint a sorry picture compared to a year ago, when the group posted a 33 percent rise in quarterly sales to 6.434 billion euros and a 37 percent rise in operating profit thanks to strong growth in telecoms markets.
Headlines this year have been less rosy, as Alcatel's merger talks with U.S. rival Lucent (NYSE:LU - news) collapsed and the French group announced it wants to sell around half its factories to cushion it from fluctuating demand in the telecoms market.
Alcatel has been struck by a slowdown that is seen lasting another 12-18 months and is being felt especially in fibre optics, one of its key earners. It has announced 3,400 job cuts in the United States -- 22 percent of its U.S. workforce.
Highlighting concerns about Alcatel's U.S. activity, Morgan Stanley Dean Witter analyst Angela Dean said: ``We have become increasingly concerned about fall-offs in its DLC (digital loop carrier), DSL and digital cross connect activities.''
Analysts say Alcatel will have a hard time getting margins back up above 10 percent without acquisitions in networking and optics, given it is only dominant in submarine networks and high-speed ADSL links, which account for a quarter of turnover.
However, some say they would prefer to see Alcatel cut costs rather than embarking on acquisitions. One potential target, Lucent Technologies' (NYSE:LU - news) fibre-optic unit, was sold to Japan's Furukawa Electric Co and Corning Inc (NYSE:GLW - news).
``The market is not too keen on Alcatel's opportunist strategy and would prefer to see it concentrate on its own cost-cutting drive to weather the current downturn rather than go and spend money on acquisitions,'' analyst David Seban-Jantet at ABN Amro.
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