Alcatel-Lucent reassured investors on Thursday that its balance sheet was healthy, but the telecommunications equipment maker’s third quarter results fell short of expectations.

Ben Verwaayen, Alcatel-Lucent’s chief executive, said the company’s debt repayment schedule was manageable and its pension schemes were in surplus.

He also said Alcatel-Lucent was willing to sell its 20.8 per cent stake in Thales, the French defence electronics maker, which is worth €1.4bn ($1.8bn).

Alcatel-Lucent’s shares, which had fallen 50 per cent since September because of worries about the company’s balance sheet, closed up 20.1 per cent at €2.02.

However, the scale of the task confronting Mr Verwaayen was underlined by the company’s third quarter results, which contained a net loss of €38m for the three months to September 30. The company, formed through a 2006 merger between France’s Alcatel and Lucent of the US, has yet to report a net profit.

Mr Verwaayen said he would outline the results of a strategic review in December that is supposed to kickstart Alcatel-Lucent’s profitability. “On profitability, we need to improve,” he said.

Analysts said the third-quarter gross profit margin of 32.5 per cent, down from 34.2 per cent in the same period last year, fell short of their expectations.

The deterioration was partly due to some of Alcatel-Lucent’s customers in Europe and the US cutting spending on fixed-line broadband equipment.

The company is the world’s leading supplier of fixed-line broadband products based on copper telephone wires, but the market for such equipment was maturing and Alcatel-Lucent’s customers were also cutting spending because of the economic downturn.

Another factor contributing to the margin deterioration was reduced spending in the third quarter by US mobile operators that use second-generation wireless technology called CDMA.

Mr Verwaayen said he expected fixed-line and mobile phone operators to become more selective in their spending on telecoms equipment.

Alcatel-Lucent reported third quarter revenue of €4.1bn, down 6.6 per cent on the same period last year. The operating income before restructuring charges was €40m, compared with €70m in the third quarter of 2007.

Addressing concerns about Alcatel-Lucent’s balance sheet, Mr Verwaayen highlighted how the company had less than €1bn of bond debt maturing in the next year. He also pointed to how the company’s pension schemes had a €3bn surplus. However, net debt rose to €600m in the third quarter compared with€415m at the end of the second quarter.

His strategic review will focus on streamlining Alcatel-Lucent’s product portfolio, although he signalled he wanted to retain the company’s lossmaking unit focused on third-generation mobile technology called WCDMA.

Some analysts have argued that Alcatel-Lucent should try to sell the unit, but Mr Verwaayen said it was important to support customers who used WCDMA technology.


Vodafone in Russian partnership

Vodafone on Thursday took its brand to Russia for the first time by unveiling a partnership agreement with MTS, the country’s largest mobile phone operator.

Vodafone will supply MTS with handsets carrying the UK company’s brand and provide expertise on the roll-out of third generation mobile networks in Russia.

However, Vittorio Colao, Vodafone’s new chief executive, signalled that the company was not planning to buy a Russian mobile operator or offer services to the country’s consumers.

Vodafone and MTS, which is owned by Sistema, the Russian conglomerate, stressed there was no equity component to their partnership agreement.

Vodafone has partnership deals with more than 40 mobile operators around the world to enable the company’s customers to make use of other networks while travelling. Similar roaming arrangements will be made with MTS, which also has mobile businesses in Armenia, Turkmenistan, Ukraine and Uzbekistan.

MTS is expected to sell handsets carrying Vodafone’s brand to its business customers rather than consumers.

Mikhail Shamolin, MTS chief executive, said the agreement with Vodafone would “give our customers the most innovative products and services from around the world”.

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