Alcatel-Lucent Swings to Loss

Alcatel-Lucent (ALU Quote - Cramer on ALU - Stock Picks) sank 8% in Europe after the struggling telecom equipment maker swung to an unexpected second-quarter loss.

The Paris-based company lost 336 million euros ($460 million), or 15 euro cents (20 cents U.S.) a share, reversing the year-ago profit of 302 million euros, or 13 euro cents a share. Sales fell to 4.33 billion euros ($5.93 billion) from 4.49 billion a year earlier.

Analysts surveyed by Thomson Financial were looking for a 3-cent profit on sales of $5.8 billion.

The struggle is only the latest for the company, which has posted disappointment after disappointment on the earnings front since last year's merger joined France's Alcatel with New Jersey's Lucent. The company has been struggling to compete with rivals like Nortel (NT Quote - Cramer on NT - Stock Picks) and Ericsson (ERIC Quote - Cramer on ERIC - Stock Picks).

"This quarter, our revenues sequentially grew by a solid 13% at a constant Euro/USD exchange rate, with the strongest performance in the wireline and services businesses," said CEO Pat Russo. "From a regional perspective, we saw strong growth in Asia Pacific. We are seeing the benefits of the merger with momentum building in our order flow for the second consecutive quarter. As a result, our order backlog at the end of the second quarter 2007 continues to improve compared to first quarter 2007."

Russo added that "gross margin was lower than we would have liked and was negatively impacted by continued significant investments in key markets, an unfavorable product and geographic mix as well as some impact from product related transition costs as customers migrate their networks. We believe the gross margin level this quarter is not indicative of the business going forward."

Alcatel-Lucent said it expects to post sequential revenue growth as the year progresses, "which implies a strong ramp-up in the second half 2007. Looking forward to the full year 2007, we continue to expect revenues to increase on a percentage basis at the carrier market growth rate of mid single digits at a constant Euro/USD exchange rate."