Alcatel bets on recovery in US market

Alcatel on Thursday raised its full-year guidance after reporting second-quarter results ahead of expectations and predicting a recovery in its US market. The French telecoms equipment maker said growth in mobile and next-generation fixed-line network sales increased confidence that the group was replacing its legacy voice business.

Profits before tax, minority interests and discontinued operations for the three months to June were €199m ($241m), a 54.3 per cent increase on 2004 on revenues that were 8.5 per cent higher at €3.15bn.

Serge Tchuruk, chairman and chief executive, forecast full-year revenue growth of between 5 and 8 per cent at constant exchange rates. Earnings per share were €0.14 for the second quarter and forecast at €0.60 for the full year.

Mobile equipment revenue grew 34 per cent to €958m, with much of the increase from emerging markets.

Sales of fixed-line products fell by 6.2 per cent to €1.2bn, although the group said the continuing decline was partially offset by growing demand for internet protocol routing and optical equipment.

Demand for “triple play” equipment, which supports television, internet and telephony, was particularly strong. “Almost every wireline customer we have is talking to us about triple play,” said Mike Quigley, chief operating officer.

However doubts continued over the predicted 10 per cent operating margin for the full year, as margins for the first half have been 6.4 per cent.

Much of the improvement was expected in the fourth quarter, when US sales, which were down year-on-year in the second quarter, were predicted to benefit from the launch of a broadband product. China was also expected to improve and mobile demand growth would continue, Mr Tchuruk said.

Richard Windsor at Nomura Securities was optimistic about the full-year outlook, despite the doubts over operating margins. “If it comes close to that 10 per cent there is significant upside, but it doesn't have to make it in order for the shares to be attractive.”