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Alcatel Gives Spark to Telecom Industry

French telecommunications giant Alcatel SA lifted the spirits of industry analysts and investors Tuesday with reports that its fourth quarter for 2002 will not be as dour as previously predicted.

This at a time when all eyes are looking to the telco industry for signs of economic recovery.

The good news sparked a 21 percent leap in Alcatel's share value Tuesday to $7.07 and had a resounding effect among many other telco equipment makers including Lucent Technologies, ADC Telecommunications, and Canada's Nortel Networks Corp. Due to the increasing demand for high-speed Internet equipment and mobile phone infrastructure equipment, Alcatel said fourth quarter sales should rise closer to 30 percent, instead of an earlier projection of around 20 percent.

The company said fourth quarter operational income would be around the break-even point.

The Paris-based supplier of telecommunications equipment originally predicted that it would only break-even in the fourth quarter by excluding items.

Alcatel also expects a return to profitability in 2003 due in part to a restructuring plan that will reduce its workforce from 119,000 to 60,000 by the year's end. The company plans to sell off more than $1 billion worth of assets to lighten its debt load.

Alcatel has not shown a profit since 2000.

"This quarter was better than we had expected and in keeping with our overall restructuring plans," said Alcatel's Chairman and Chief Executive Serge Tchuruk. "The company will now focus on generating value and profits."

Tchuruk added that he expects the company to reduce its break-even point to three billion euros by the end of 2003 and that it would take less sales in order to turn a profit.

However, many analysts are wary of such good news amid a still-struggling telco industry that has suffered against a sluggish market for the better part of two years. And despite the steady rise in demand for broadband equipment, there is still no sure sign of light at the end of the tunnel.

"These companies are not out of the woods," Richard Steinberg, president of Steinberg Global Asset Management told Reuters. "We're hoping that the worst is over. Demand certainly has not returned yet. We're in wait-and-see mode."

Alcatel's full fourth quarter results will be announced on Feb. 4.