Alcatel-Lucent, S.A. (NYSE: ALU) recently saw its shares jump due to earnings from Juniper Networks, Inc. (NYSE: JNPR) but the new earnings report from the company itself shows that the ties are just too crazy to maintain any relevance. The European telecom and communications equipment maker managed to turn in a profit of more than $500 million (translated from euros) for its first quarter, but the company’s report is full of caution and uncertainty if you factor out the gains from a unit sale. Shares were pounded down in local trading in Paris.
As the company is based in Europe, Alcatel-Lucent has far more exposure to the internal workings of Europe than most U.S.-based telecom and communications equipment players. It saw double-digit percentage declines in wireless and optics equipment, and it also said sales in North America were weak. Overall revenue was down by more than 12% to 3.2 billion euros, and the company’s gross margin fell to almost 30% from above 34% in the prior quarter for comparison. The operating margin for 2012 is looking to be better than the 3.9% of 2011, but it may not be at the 5% that the company previously targeted.
Even with the warning that uncertainty in Europe is very high, the company is still trying to maintain a target of higher profitability this year based on further cost cuts.
Here is the issue to consider. Nokia Corporation (NYSE: NOK) via Nokia Siemens and Ericsson (NASDAQ: ERIC) remain under pressure in Europe. The company claims that North America is still very challenging. If the growth markets of China, India and South America are in an overall sluggish state with much lower core economic growth rates, then what does the company really have for great prospects? It is hard to make any direct ties to Cisco Systems Inc. (NASDAQ: CSCO) any longer as the sizes are so different.
Technology companies have proven over and over that they can have cost cuts to improve operating performance. The problem is that investors want growth in the sector, or at least they prefer to invest in growth over value in the technology sector.
This feels like another empty day of promises in a turnaround story that just never really seems to be a turnaround story for very long. It is too early to see New York ADR trading for any real market depth, but the drop of almost 13% to 1.28 euros in Paris trading should pretty much sum things up. The shares traded more than an average day’s volume in the first couple of hours in Paris and its local market 52-week trading range is 1.10 to 4.47 euros.
If Alcatel-Lucent shares fall the same in New York trading after a $1.95 close then the ADRs will be somewhere around $1.70 or so and its 52-week range for U.S. concerns is $1.39 to $6.63.
JON C. OGG