Alcatel reported Q2 revenues of EUR 3.145 billion, an increase of 8.5% at a current EUR/US$ exchange rate (an increase of 10.7% at a constant EUR/US$ exchange rate). Net income (group share) amounted to EUR 196 million, or a diluted EPS of EUR 0.14 (US$ 0.17 per ADS).
Some highlights from the quarter:
- The gross margin was registered at 35.6%
- Operating profit amounted to EUR 263 million, representing an 8.4% operating margin.
- Fixed communications revenues in Q2 decreased by 6.2% to EUR 1.224 billion from EUR 1.305 billion in the same period last year. The company cited good momentum in optical transmission and IP routing driven by a ramp in Triple Play deployments. The decrease in the segment's revenues is primarily due to the continued drop in traditional TDM switching, as well as some decline in broadband access revenues compared to the particularly solid second quarter 2004 in North America.
- Volumes in DSL lines reached 5.9 million during the second quarter registering a market share gain and a return to the historical market position, with strength in Europe and China. The IP DSLAM continued to drive revenues with substantial volume deliveries during the quarter, while the market transitions to ADSL2plus technology.
- Mobile communications revenues in Q2 increased by 34.6% to EUR 958 million from EUR 712 million in the same period last year, with growth across all product lines. Alcatel said emerging markets continued to be dynamic and hybrid 2G/3G infrastructure revenues were driven by activity in Brazil, Nigeria, Russia, and China. A new radio WCDMA customer was registered in the Middle East, confirming that a number of emerging countries are moving to 3G technologies.
- Alcatel saw momentum continuing to build in next generation solutions, such as NGN-IMS core, where two flagship contracts were won in Western Europe and SE Asia. Over 20 trials with new customers have now been registered.
- Mobile applications recorded significant growth with strong volumes in payment applications where the market is shifting to full converged payment solutions. Market traction was registered in video/music services where Alcatel now has over 60 customers.
- Private communications revenues in Q2 increased by 6.5% to EUR 981 million compared with EUR 921 million in the same period last year. In the enterprise market, revenues bounced back more than expected after a slow start at the beginning of the year and voice services grew, especially in Eastern and Northern Europe.
- IP telephony continued to register a strong progression, representing more than a third of the total shipments. Genesys again turned in a solid performance.
Serge Tchuruk, Chairman and CEO, summarized the Board's observations:
"Second quarter results came in above expectations. Sales were higher than anticipated in all three business segments. In particular, the mobile communication business grew around 30% year over year for the second quarter in a row, with a return to double digit profitability, confirming the strength of our product offering and regional strategy. While the fixed communication business continued to shrink as expected during the quarter, our market dynamics clearly point towards the forecasted rebound in the second half. We are also pleased by the return to growth of our private communication business, despite the weakness associated with the low cycle in space activities."
"We continue to operate in a competitive environment leading to pricing pressure. With product cost improvements offsetting price trends, our gross margin has been stabilizing for the last three quarters. "
