Alcatel hit by jitters over profit outlook
(Recasts with detail on credit rating, analysts)
PARIS, April 10 (Reuters) - Shares in French telecoms equipment maker Alcatel (CGEP.PA) were battered on Wednesday as investors fretted about the group's earnings outlook in the wake of worries over north American peers Cisco and Nortel.
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Alcatel shares were down 2.14 percent at 15.09 euros at 1101 GMT, trimming an earlier 3.63 percent fall, after rumours that Internet equipment giant Cisco (NasdaqNM:CSCO - news) would miss its quarterly earnings forecasts knocked eight percent off Cisco shares.
Traders said talk was circulating in Europe that Alcatel might issue a profit warning ahead of its first-quarter results on April 25, after Nortel Networks (Toronto:NT.TO - news; NYSE:NT - news) warned on Tuesday that its first-quarter sales would be lower than expected.
``Rumours of a profit warning are circulating. We have informed our clients,'' said a trader at a leading brokerage.
An Alcatel spokesman declined to comment.
Some investors were also anxious about Alcatel's credit rating after two rating agencies downgraded Nortel's corporate credit rating in recent days.
RATINGS UNDER SPOTLIGHT
Standard & Poor's on Tuesday cut its rating on Nortel to double 'B'-minus (BB-) from triple 'B'-minus (BBB-), on revenue concerns, while Moody's Investor Services slashed Nortel's debt to junk status last week, sending its borrowing costs soaring.
While the situation in Europe, where Alcatel makes most of its turnover, is less gloomy than in north America, where Nortel and Cisco are concentrated, Moody's said it was carefully monitoring Alcatel's performance.
``It's a concern for us. If Alcatel's business volumes continue to shrink at the current pace of 20 percent or more, it's hard to imagine a return to profitability,'' said an analyst at Moody's, preferring not to be named.
``A downgrade of Alcatel's ratings is quite possible before the release of second-quarter results, and such a move would not necessarily depend on first-quarter results at the end of the month,'' said Societe Generale credit strategist Suki Mann.
S&P analyst Leandro de Torres said Nortel's higher exposure to the north American market meant it was harder hit by the U.S. slump but said it had a stronger capital structure than Alcatel.
``Alcatel has a broader geographic presence and product range but has seen its revenues decline just as much,'' he noted.
Alcatel's ratings were last adjusted in February, when S&P cut its short-term rating to 'A-3' from 'A-2' but kept its long-term note at triple-'B' and Moody's cut its long-term note to Baa2 from Baa1. Both agencies have a negative outlook on it.
``I don't think there will be a warning on Q1 results, but the question is whether they will alter their guidance for the full year, especially since most people are already below the company's targets,'' said CLSE analyst Emmanuel Bousquet.
``Alcatel should be one of the survivors in the global equipment sector; it is more solid on a financial level than some of its peers, and I think it would take a significant downgrade to full-year revenues to trigger a credit downgrade.''
Illustrating that banks are still happy to lend it money, Alcatel said earlier on Wednesday it had secured a 2.075 billion euro syndicated credit facility, an increase from a 1.5 billion euro facility announced last month. (Additional reporting by Juliette Rouillon)
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