Alcatel-Lucent posts monster loss, $5.1 billion

Alcatel-Lucent posts monster loss, $5.1 billion

by Lionel Laurent

A hefty $5.1B write-down keeps the company unprofitable for the quarter.
Franco-American network supplier Alcatel-Lucent has struggled to make a profit ever since it was created in 2006, but now the global downturn is pushing it even deeper in the red.

On Wednesday, Alcatel-Lucent reported a wider fourth-quarter loss than the year before, of $5.1 billion, largely due to a $5.1 billion writedown on intangible company assets, a sign that parts of the company were overvalued at the time of its creation. Blaming the "drastic deterioration of the global economic outlook," new Chief Executive Ben Verwaayen took on the impairment charge after reviewing the company's business units when he took the helm last year; evidently the declining confidence and size of the network market is not doing the company any favors.

Shares of Alcatel-Lucent gained 2.1%, or 3 euro cents (17 cents), to 1.50 euros ($2.07), during late trading in Paris, though the wider technology sector was up 3.6%. The stock has fallen more than 80.0% since the company was formed out of France's Alcatel and American company Lucent Technologies in 2006, driven down by a steady stream of losses and write-downs.

"You could say this is the last big bomb to explode, so the riskiness going forward is now significantly reduced," said Nicolas von Stackelberg, an analyst with Sal. Oppenheim, who rated the stock "neutral." He told Forbes that even though the write-down left Alcatel-Lucent's balance sheet looking vulnerable, the company could hold off raising extra capital for the moment.

"The asset impairment charge that severely impacted our bottom line was made necessary by the drastic deterioration of the global economic outlook during the fourth quarter," said Alcatel-Lucent's Verwaayen on Wednesday. It was the company's biggest write-down yet on intangible goodwill assets, implicitly acknowledging the continuing fall in value of Lucent assets acquired in the 2006 merger.

Analyst forecasts did not predict the write-down. Alcatel's Verwaayen had warned last year that a new strategic review might lead to a revaluation of company assets.

Despite the write-down, Alcatel did reiterate its industry guidance for 2009 and met the lower end of its targets for gross margin, operating cash flow and sales, excluding currency effects. There will also be some forthcoming cash relief from the sale of Alcatel's 1.6 billion-euro ($2.7 billion) stake in aerospace and defense conglomerate Thales, and the potential to take advantage of rival Nortel Networks' recent bankruptcy filing. (See "Nortel Throws In The Towel.")

Swedish network supplier Ericsson has benefited from its rivals' problems, and last month released a strong set of expectation-beating quarterly results. (See "Ericsson Gains From Tech Trouble.")