Telecoms equipment maker Alcatel, battling an industry slowdown and weak US demand, will stop making handsets and sell its enterprise business units to focus on networking, optics and space, the company said Tuesday.
Alcatel forecast that operating profit from its telecoms business would slip this year and said one-off restructuring charges and write-downs would lead to a second-quarter net loss of approximately three billion euros (US$2.57 billion) in its telecoms division.
Alcatel, which late on Tuesday broke off merger talks with US rival Lucent Technologies aimed at creating an industry giant that could better weather the market downturn, said it had decided to concentrate on service provider network activities, which make up 80 percent of its telecoms business.
"This focus will lead to expedite re-engineering, strategic alliances and divestitures of other current activities or assets," Alcatel said in a statement.
The company, which has begun the flotation of its Nexans cables unit, reiterated it would exit handset manufacturing, having already outsourced some output, and said it was examining a sale of its enterprise business division.
"Under current conditions, Alcatel's service providers business, proving to be robust, is still likely to progress around 10 percent in 2001 in revenues and have an operating income around last year's level," it said.
"In the e-business sector, losses are due largely to the very weak cellular handset market in Europe. With these contrasting trends, even if the total telecom revenue should grow by a few percent, the corresponding operating income is now seen below that of last year," it said.
Alcatel scaled back its 2001 outlook in April despite a firm first quarter, forecasting telecoms sales would show an increase of 5 to 15 percent, having previously forecast 20 percent.
Alcatel's optical components unit also cut 2001 sales and margin forecasts. Alcatel Optronics now expects 20 to 25 percent sales growth, less than half the previous forecast, and an operating margin of 15 percent rather than 20 percent.
Alcatel's shares rose as much as 1.65 euros yesterday, or 5.4 percent, to 32.5 euros.
Analysts had been braced for another downward revision given cloudy outlooks from peers and ever since a key client, Canada's 360networks, delayed two major projects which will hit Alcatel's revenues from underwater projects.
Alcatel said it was now pegging second-quarter operating income from telecoms at above 100 million euros.
Included in an expected three billion euro net loss are the restructuring costs linked to planned divestments, inventory depreciations, and a write-down on Alcatel's US$700 million of 360networks convertible bonds, the company said.
It said the second-quarter forecast did not include a two billion euro capital gain that Alcatel believes it can achieve by the end of the year through the asset disposal program.
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