Alcatel-Lucent issues another profit warning (USA)Equipment vendor impacted by spending freeze by U.S. mobile operators; lifting of Qualcomm import ban provides glimmer of hope.
Alcatel-Lucent issued its third profit warning this year on Thursday, sending its shares into free fall.
Citing weakness at its North American operations, the Franco-U.S. equipment vendor revised its revenue forecast for full-year 2007 and admitted that profitability is likely to be negatively impacted.
“Alcatel-Lucent now expects its full year 2007 revenue growth to be flat to slightly up,” the vendor said in a statement. It had previously predicted growth in the mid-single digits.
The news comes as a significant blow to Alcatel-Lucent, which is struggling to allay investor fears over stability and strategy in the wake of last year’s merger and a subsequent string of poor quarterly results. In August the company announced the resignations of chief administrative officer Frank D’Amelio and president of science, technology and strategy Mike Quigley, both of whom were heavily involved in the merger process.
“The downward revision in the revenue forecast is based on the most recent and updated discussions with some wireless customers in North America,” the vendor said. “Alcatel-Lucent is now seeing a change in capital spending with those customers in 2007, compared to what it had anticipated.”
Consequently, the company is not seeing the predicted increase in volumes that would have offset pricing pressures, it added.
“It is worse than we had feared,” said Nomura International analyst Richard Windsor, acknowledging that Alcatel-Lucent’s two major CDMA customers in the U.S. – Verizon Wireless and Sprint Nextel – have “put the brakes on spending, causing revenues to be materially lower.”
Windsor attributes the spending freeze on the part of the carriers to the legal battle between Qualcomm and Broadcom, that saw a ban imposed on the import into the U.S. of mobile handsets containing Qualcomm chipsets.
However, a U.S. federal appeals court judge overturned the ban on Wednesday, after a number of companies, operators and vendors included, protested that as Broadcom filed its patent complaint against Qualcomm only, the International Trade Commission did not have the authority to block imports by firms other than Qualcomm.
The decision will be welcomed by all parties in the CDMA industry, and pave the way for spending to resume.
“Consequently we are comfortable that in 2008 revenues from CDMA infrastructure will flatten out and that good profitability will return,” says Windsor.
Meanwhile Standard & Poor’s notes that it is not just Alcatel-Lucent’s CDMA business in North America that is proving to be a thorn in its side.
“We think the reasons are wider and also see market share losses in 3G (Ericsson) and price competition from Ericsson and Huawei,” said S&P analyst Clara Van der Elst.
“In market share terms we believe the company continues to lose out.”
Indeed, Nomura’s Windsor suggests there may not be much of a future for Alcatel-Lucent in the GSM/UMTS space, also citing increasing pressure from arch-rival Ericsson.
“Some very hard questions need to be asked about the viability of Alcatel-Lucent’s presence in this business,” he said.
Alcatel-Lucent said it will provide an update on its plans when it announces third-quarter results on 31 October.
According to Dow Jones Newswires, Alcatel-Lucent’s share price fell to €6.32 earlier today, its lowest level ever, although the stock has since rallied.
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