Hefty charges push Alcatel into the red

Burdened by a heavy restructuring charge and write downs, Alcatel SA reported a quarterly net loss on Thursday, its first since Serge Tchuruk took over as chief executive officer in 1995.

The company posted a net loss of 3.12 billion euros (US$2.65 billion, as of June 30, the last day of the quarter being reported), compared to a net profit of 344 million euros in the year-ago period. The loss is slightly higher than the revised estimate of 3 billion euros Alcatel gave out in late May. Before the revision, Alcatel had expected to lose around 2 billion euros.

Alcatel is in the process of restructuring and plans to cut its workforce by 14,000 by the end of this year. The company took a 3.22 billion-euro pretax charge, which includes 1.13 billion euros for restructuring and a 1.5 billion-euro write down of goodwill and acquired technology.

Sales in the second quarter came in at 6.77 billion euros, up 4.5 per cent compared to the 6.48 billion euros taken in the same period last year, excluding the divested cable division Nexans.

Alcatel said declines in its mobile handset activities and a profit slump in its narrowband business, particularly in the U.S, offset growth in its optics, broadband access and mobile infrastructure businesses. Negative effects on margins and swollen inventory levels triggered part of the write-downs, Alcatel said.

For the next quarter Alcatel expects to post lower year-on-year sales, while the full year revenue figure should be close to last year’s. The company expects positive net operating cash flows in the second half and positive income from operations for the full year. The restructuring, aimed cutting operating expenses by over 1 billion euros, should start to positively affect the company’s results in the fourth quarter, Alcatel said.

In separate statements, Alcatel said it would cut 500 jobs in Canada as part of its program to save costs, and announced the departure of Krish Prabhu as chief operating officer (COO) of the company. Prabhu will become member of the board of directors, where he will replace Jacques Friedmann, who is leaving for personal reasons. Alcatel hasn’t appointed a new COO.

“Alcatel management is evaluating the need for the COO role. If it is needed we will fill it,” said Klaus Wustrack, a spokesman for Alcatel.

Shares in Alcatel (CGE.PAR) were up almost 2.4 per cent at 17.31 euros during midday trading at the Paris stock exchange.

Alcatel Canada can be reached at http://www.alcatel.ca/.

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