Alcatel-Lucent Slumps Amid Flat Earnings

Telecom equipment supplier Alcatel-Lucent blamed shifting
spending and increased competition for flat growth in 2006. The news, announced today in advance of its Feb. 9 earnings report, sent
stocks of the Paris-based company down.

Citing a number of factors, including the effects of last year’s $13.4 billion merger between U.S.-based Lucent Technologies and France’s Alcatel, Alcatel-Lucent anticipates fourth-quarter 2006 revenue will be around $5 billion (euro 3.87 billion) with quarterly operating income at $155 million (euro 120 million).

The company said it expects adjusted pro-forma fourth-quarter 2006 revenue to be around euro $5.72 billion (euro 4.42 billion),
down from $6.8 billion (euro 5.25 billion) in the same quarter of 2005.

Revenue for all of 2006 is expected to reach around $23.7 billion (euro 18.3
billion) compared with euro $24.1 billion (euro 18.6 billion) for fiscal
2005, the company said in a statement. Profit for 2006 will also be lower at $1.3 billion (euro 1.04 billion) versus $1.8 billion (euro 1.41 billion) for all of 2005.

In a statement, the company said customer uncertainty arising from the
merger significantly impacted the business. In addition to the merger, the company acquired Nortel’s UTMS
business and transferred much of its operations to France.

“The last quarter of the year proved to be
challenging from a market perspective, driven by a shift in spending from
some of our large North American customers and heightened competition in the
global wireless market,” said Patricia Russo, CEO of Alcatel-Lucent, in a statement.

That competition comes from, among others, Cisco Systems . Last year, Russo, then Lucent’s CEO, pointed to a slowdown
in wireless sales for falling revenue prior to the merger.

Alcatel-Lucent said it planned unspecified “additional actions” designed to further reduce costs. Last year the company said it planned to eliminate 9,000 jobs as part of the merger.

Despite the lackluster year, the Alcatel-Lucent reported “considerable progress”
converging products and preparing cost cutting programs.

Russo said that Alcatel in 2007 will resume growth in the mid
single digits this year and cut costs by $774 million (euro 600 million), which is higher than initially projected.

In late-morning trading, Alcatel-Lucent shares were down 8.31 percent to $12.99 a share.

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