Second Quarter Financial Highlights: PARIS, July 27
/PRNewswire-FirstCall/ -- - Net income (group share) at Euro 180
million, EPS at Euro 0.13 - Net cash position at Euro 980 million
Alcatel's (Paris: CGEP.PA and NYSE: ALA) Board of Directors
reviewed and approved second quarter 2006 results. Revenues were up
by 7.6% at Euro 3,384 million compared with Euro 3,145 million (up
7.3% at constant Euro/USD exchange rate) in the same period last
year. The gross margin was 33.6%. Operating profit amounted to Euro
263 million, a 7.8% operating margin, and included a Euro 12
million impact from a capital gain resulting from disposal of fixed
assets. Net income (group share) for the quarter was registered at
Euro 180 million or a diluted EPS of Euro 0.13 per share (USD 0.17
per ADS), (Euro 0.12 per share, excluding capital gains) which
compared with a diluted EPS in second quarter 2005 of Euro 0.14
(Euro 0.09 per share, excluding capital gains). Key Figures Second
Qtr Second Qtr First Qtr 2006 2005 2006 In Euro million except for
EPS Profit & Loss Revenues 3,384 3,145 3,067 Operating Profit
263 263 198 Income from operating activities 243 209 157 Net income
(group share) 180 196 104 EPS Diluted (in Euro) 0.13 0.14 0.08 EPS
Diluted (in Euro) excluding 0.12 0.09 0.06 capital gains E/ADS (in
USD)* 0.17 0.18 0.10 Number of shares (billion) 1.38 1.37 1.38
*E/ADS has been calculated using the US Federal Reserve Bank of New
York noon euro/dollar buying rate of USD1.28 as of June 30, 2006.
Serge Tchuruk, Chairman and CEO, summarized the Board's
observations: "While preparing for the merger with Lucent
Technologies and the Thales transaction, Alcatel achieved good
revenue growth in the second quarter, above market rate. Our strong
performance in the wireline segment confirmed Alcatel's leading
position in the network transformation to an all-IP infrastructure
to support triple play services. We are particularly pleased with
the resulting 4-fold year over year revenue increase in IP routing
and aggregation as well as our strong position in the DSL and fibre
access markets. With the industry consolidation gaining momentum,
the wireless market environment becomes even more competitive as
some players are aggressively trying to reposition themselves. In
this context, we remained deliberately selective in addressing
contract opportunities involving mature technologies. At the same
time we continued to invest in key future wireless technologies and
applications to develop a leading position in next generation
networks. The forthcoming Lucent merger will bring added scale into
related R&D programs. We were particularly satisfied with the
strong quarter in North America where we registered a 40% growth
(USD), driven by a strong demand for triple play services, and with
our activity in China, which saw more than a 20% increase (USD),
with significant strength in wireless. Going into the second half
of the year we expect to see the carrier market growing in the mid
single digit range for full year 2006. As we expect the pending
merger with Lucent Technologies to close during the fourth quarter,
we are not providing specific annual guidance. We are also working
on the Thales transaction which is targeted to close before
year-end. Our third quarter will be a transition quarter where we
expect revenues to grow year over year in the mid single digit
range (at the current structure). The operating profit should be
close to the same amount as in the second quarter of 2006, taking
into account increased investments in R&D and additional costs
associated with the strategic moves underway. Together with Lucent
Technologies as a combined company, we are comfortable in our
ability to achieve the targeted Euro 1.4 billion in cost synergies,
which should translate into significantly improved profitability
for the future. Furthermore, this transaction will give us the
economies of scale needed in all R&D areas and will position
the company to capitalize on the trend towards converged networks,
which we believe will drive the carrier market". MERGER UPDATE On
July 24, 2006, the European Commission informed Alcatel and Lucent
Technologies that their proposed merger complies with the European
Union's competition rules and that the two companies have its
approval to merge. As announced on July 10, 2006, the companies
believe they are currently on track to complete their merger
transaction by the end of calendar year 2006. Segment Breakdown
Second Qtr Second Qtr First Qtr In Euro million 2006 2005 2006
Revenues Fixed Communications 1,363 1,224 1,273 Mobile
Communications 1,007 958 908 Private Communications 1,034 981 905
Other & Eliminations (20) (18) (19) Total 3,384 3,145 3,067
Income from Operations Fixed Communications 133 120 110 Mobile
Communications 80 115 57 Private Communications 51 59 48 Other
& Eliminations (1) (31) (17) Total 263 263 198 Second Quarter
Business Update Note: The following comments are based on year on
year comparisons. Fixed communications Second quarter revenue
increased by 11.4% to Euro 1,363 million compared with Euro 1,224
million in the same period last year. Strength continued in the IP
network transformation and revenues were driven by the access and
IP carrier data activities for triple play and enterprise
applications. The IP data business once again recorded significant
growth, with new contract wins in the U.S., Denmark, Spain,
Venezuela, Malaysia and Thailand. In addition to the strong
momentum in IP service routing, the MSWAN activity continued to
reflect sustained demand for ATM-based DSL aggregation and for 3G
RAN (Radio Access Network) aggregation. The access business also
performed well during the quarter, registering a record 6.7 million
DSL line shipments which outperformed market growth, with a good
performance across the regions, compared with the same period last
year. Alcatel's IP access platform product revenues also continued
to grow significantly during the quarter. The optical business
slowed slightly on year over year comparisons, however, a leading
position was maintained and a promising pick up was registered in
the DWDM business driven by bandwidth expansion to support video
services. Revenues grew significantly in the NGN/IMS activity, more
than doubling in the first half of the year compared to 2005, with
good traction at incumbent operators in Europe and Asia. The
business now has more than 90 customers. A major win in the
Enterprise fixed mobile convergence was awarded this quarter with a
tier-1 operator in the UK. The traditional TDM voice activity
continued to decline as expected during the quarter, however, some
of this decrease was offset by maintenance/services revenue, which
now accounts for a significant portion of the business. Operating
profit amounted to Euro 133 million, representing a 9.8% operating
margin with significant contributions coming from the IP data and
access businesses, offset in part by impact from labor strike in
optics. Mobile communications Second quarter revenue increased by
5.1% to Euro 1,007 million compared with Euro 958 million in the
same period last year. Revenues were strong in the 2G mobile radio
business with solid growth in the emerging markets, especially
China, while the 3G product family is generating a growing revenue
stream, where a new win in Malaysia was registered during the
quarter. The core switching business continues its significant
shift from traditional TDM to NGN/IMS solutions, leading to a
substantial decrease in the TDM activity. Alcatel has now installed
NGN subscriber capacity of 50+ million to date with over 60 live
sites, and has now passed more than 17 billion calls on its next
generation call server technology. Video and payment applications
once again registered a significant revenue increase. Mobile
operators confirmed their interest to implement Mobile TV services,
where Alcatel recorded several wins in the quarter with its leading
technology. Although revenues are still marginal in the WiMAX
activity, recent trends confirmed the growing acceptance of the
Alcatel solution, as demonstrated by an important win with one of
the major operators in North America. Operating profit amounted to
Euro 80 million, representing a 7.9% operating margin, with
investments in the NGN/IMS core, 3G and WiMAX product offering
continuing to impact margins, in a competitive pricing environment.
Private communications Second quarter revenue increased by 5.4% to
Euro 1,034 million compared with Euro 981 million in the same
period last year. Revenues were strong in the enterprise and rail
communication activities. The enterprise business turned in a good
performance across all product lines, with particular strength in
Asia Pacific and Latin America, although the growth was somewhat
tempered by the reorganization of one of the primary distribution
channels in Europe. New markets are steadily growing as a
percentage of revenues for this division. The contact centre
activity, Genesys, continued to be a strong driver for revenue
progression. The rail communications grew its revenue as a result
of good execution of all our programs, especially in the U.S. and
the UK for the subway segment. New contracts were signed during the
quarter, in particular a combined signalling and communications
project for a new high speed line in Spain. The integration and
services business saw a good quarter and was positively impacted by
carrier customers moving into an all IP infrastructure and the
needs for an associated OSS system and partner to handle their
integration needs. The space activity registered a soft quarter due
to a delay in order intake for an institutional program, however
two new commercial wins were recorded in the U.S. and in the Middle
East. Operating profit amounted to Euro 51 million, representing a
4.9% operating margin, with a satisfactory performance coming from
all businesses. Alcatel will host an audio web cast at 1:00 p.m.
Paris time (12:00 p.m. London and 7:00 a.m. New York), which can be
accessed at http://www.alcatel.com/2q2006/ or
http://www.alcatel.fr/2q2006. Second quarter 2006 results
Consolidated Income Statement: - Revenues: Euro 3,384 million vs.
Euro 3,145 million Q2 05 (up 7.6%) and vs. Euro 3,067 million
sequentially - Geographical distribution of revenues: W. Europe:
39% North America: 18% Asia: 16% RoW: 27% - Gross margin: 33.6%
(35.6% for Q2 05) - Selling, general and administration
("SG&A") costs: Euro (512) million (15.1% of sales) - Research
and development ("R&D") expenses: Euro (362) million (10.7% of
sales) - Operating profit: Euro 263 million, an 7.8% operating
margin - Income from operating activities: Euro 243 million and
included - Share-based payment at Euro (14) million - Restructuring
at Euro (2) million - Goodwill Impairment Euro (4) million - Income
from continuing operations: Euro 238 million and included: - Net
financial costs of Euro (21) million - Share of equity affiliates
at Euro 16 million - Income Tax at Euro (42) million - Net Income
(Group share): Euro 180 million - Diluted EPS: Euro 0.13 (USD 0.17
per ADS) based on an average of 1.38 billion shares BALANCE SHEET
ITEMS: - Operating working capital: Euro 1,076 million, 7.8% of
last 12 months revenues - Cash and equivalents and marketable
securities: Euro 4,500 million - Net Cash: Euro 980 million
Upcoming Events/Announcements September 7, 2006 Annual
Shareholders' Meeting October 25, 2006 Third quarter earnings
announcement About Alcatel Alcatel provides communications
solutions to telecommunication carriers, Internet service providers
and enterprises for delivery of voice, data and video applications
to their customers or employees. Alcatel brings its leading
position in fixed and mobile broadband networks, applications and
services, to help its partners and customers build a user-centric
broadband world. With sales of EURO 13.1 billion and 58,000
employees in 2005, Alcatel operates in more than 130 countries. For
more information, visit Alcatel on the Internet:
http://www.alcatel.com/ Alcatel Press Contacts Regine Coqueran
Tel:+33-(0)1-40-76-49-24 Stephane Lapeyrade Tel.:
+33-(0)1-40-76-12-74 Alcatel Investor Relations Pascal Bantegnie
Tel: +33-(0)1-40-76-52-20 Nicolas Leyssieux Tel:
+33-(0)1-40-76-37-32 Maria Alcon Tel: +33-(0)1-40-76-15-17
Charlotte Laurent-Ottomane Tel: +1-703-668-7016 Safe Harbor
statement under the Private Securities Litigation Reform Act of
1995: This press release contains forward-looking statements
relating to (i) Alcatel's performance in future periods, including
without limitation, with respect to third quarter 2006 revenue,
gross margin, operating profit and earnings per share (EPS) (ii)
the benefits to Alcatel in 2006 from its improvements in product
costs and restructuring efforts, (iii) improvements in margins from
new technologies, and (iv) benefits that will result from strategic
partnerships, acquisitions and divestitures, and in particular the
operations contemplated with Lucent and Thales. These forward
looking statements are based on current expectations, forecasts and
assumptions that involve risks and uncertainties that could cause
actual outcomes and results to differ materially from those
projected. These risks and uncertainties include: whether Alcatel
can continue to obtain product cost improvements and to implement
cost cutting and restructuring programs and whether these efforts
will achieve their expected benefits, including improvements in net
income, among other benefits; the economic situation in general
(including exchange rate fluctuations), and uncertainties in
Alcatel's customers' businesses in particular; customer demand for
Alcatel's products and services; control of costs and expenses;
international growth; conditions and growth rates in the
telecommunications industry and general domestic and international
economic conditions; the timing of closing and expected benefits
from the operations contemplated with Lucent and Thales; and the
impact of each of these factors on sales and income. For a further
list and description of such risks and uncertainties, see the
reports filed by Alcatel with the Securities and Exchange
Commission. Alcatel disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. In connection with the
proposed transaction between Lucent and Alcatel, Alcatel has filed
a registration statement on Form F-4 (File no. 33-133919) (the
"Form F-4") to register the Alcatel ordinary shares underlying the
Alcatel American Depositary Shares ("ADS") to be issued in the
proposed transaction. Alcatel and Lucent have also filed, and
intend to continue to file, additional relevant materials with the
SEC, including a registration statement on Form F-6 (the "Form F-6"
and together with the Form F-4, the "Registration Statements") to
register the Alcatel ADSs to be issued in the proposed transaction.
The Registration Statements and the related proxy
statement/prospectus contain and will contain important information
about Lucent, Alcatel, the proposed transaction and related
matters. Investors and security holders are urged to read the
Registration Statements and the related proxy statement/prospectus
carefully, and any other relevant documents filed with the SEC,
including all amendments, because they contain important
information. Investors and security holders may obtain free copies
of the documents filed with the SEC by Lucent and Alcatel
(including the Form F-4 and, when filed, the Form F-6) through the
web site maintained by the SEC at http://www.sec.gov/. In addition,
investors and security holders may obtain free copies of materials
filed with the SEC by Lucent and Alcatel (including the Form F-4
and, when filed, the Form F-6) by contacting Investor Relations at
http://www.lucent.com/, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500 and from
Alcatel by contacting Investor Relations at
http://www.alcatel.com/, by mail to 54, rue La Boetie, 75008 Paris,
France or by telephone at 33-1-40-76-10-10. Lucent and its
directors and executive officers also may be deemed to be
participants in the solicitation of proxies from the stockholders
of Lucent in connection with the transaction described herein.
Information regarding the special interests of these directors and
executive officers in the transaction described herein is included
in the Form F-4 (and will be included in the definitive proxy
statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is
also included in Lucent's proxy statement for its 2006 annual
meeting of stockholders, which was filed with the SEC on or about
January 3, 2006. This document is available free of charge at the
SEC's web site at http://www.sec.gov/ and from Lucent by contacting
Investor Relations at http://www.lucent.com/, by mail to 600
Mountain Avenue, Murray Hill, New Jersey 07974 or by telephone at
908-582-8500. Alcatel and its directors and executive officers may
be deemed to be participants in the solicitation of proxies from
the stockholders of Lucent in connection with the transaction
described herein. Information regarding the special interests of
these directors and executive officers in the transaction described
herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed
transaction). Additional information regarding these directors and
executive officers is also included in Alcatel's annual report on
Form 20-F filed with the SEC on March 31, 2006. This document is
available free of charge at the SEC's web site at
http://www.sec.gov/ and from Alcatel by contacting Investor
Relations at http://www.alcatel.com/, by mail to 54, rue La Boetie,
75008 Paris, France or by telephone at +33-1-40-76-10-10.
DATASOURCE: Alcatel CONTACT: Pascal Bantegnie, Tel:
+33-(0)1-40-76-52-20, , Nicolas Leyssieux, Tel:
+33-(0)1-40-76-37-32, , Maria Alcon, Tel: +33-(0)1-40-76-15-17, ,
Charlotte Laurent-Ottomane, Tel: +1-703-668-7016,
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