Alcatel-Lucent banks on China for profit growth

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By Zheng Lifei (China Daily/Agencies)
Updated: 2009-07-31 08:00

French-American telecom gear maker Alcatel-Lucent yesterday posted its first profit in 11 quarters, thanks to aggressive costs cuts, an asset sale and robust sales growth in Asia, especially, China.

The world's biggest fixed telecom equipment provider expects to turn profitable next year, its CEO said yesterday.

The telecom equipment giant, formed after the merger of Alcatel of France and US-based Lucent in 2006, will increasingly look to countries like China and India for business opportunities amid the industry-wide telecom gear market slowdown, Ben Verwaayen, its CEO said yesterday in a telephonic interview to China Daily.

Alcatel-Lucent posted second-quarter net profit of 14 million euros compared to a loss of 1.1 billion euros in the corresponding quarter a year earlier.

The upbeat results, which exceeded analysts' expectations, was a result of a combination of factors such as a gain of 255 million euros linked to the sale of its Thales shares, cost cutting measures the company undertook since Ben Verwaayen came on board last September and strong performances in countries like China and India.

"China really contributed a lot to our good performance this quarter," Verwaayen said in the interview.

Verwaayen, who was CEO of British Telecom before moving to Alcatel-Lucent, said he expected the global market for telecommunications equipment and related services to fall between 8 percent and 12 percent at constant exchange rates this year.

"But the story in China is different," Verwaayen said.

"China is the best market in terms of growth prospects," the CEO said, without making any sales targets and projections in the country.

The country's rollout of 3G services earlier this year and the increasing customer demand for video and mobile connection services, he said, would drive growth in China's telecom equipment and services market.

"This year will be a good year for us (in China) and next year will be too," Verwaayen said.

China, he said, is not only a manufacturing base for Alcatel-Lucent but also "plays an important role in creating our products".

"It is also a base where we work with our sophisticated customers and learn from them," Verwaayen said.

Global telecom gear makers are now increasingly turning to China as a growth market to offset their declining sales in developed countries, as the economic downturn forced many telecom operators to cut back on capital expenditures.

Chinese telecom operators, however, are expected to spend a total of 400 billion yuan on 3G networks over the next three years following the issuance of 3G licenses earlier this year, providing a strategic buffer zone for companies like Alcatel-Lucent and its peers.

Alcatel-Lucent, analysts said, is best positioned among foreign telecom gear makers to take a bigger share of the 3G orders in China as the company makes equipment that supports all the three 3G standards Chinese telecom operators adopted, including China's home-grown TD-SCDMA.

The Paris-based company bagged a $1.7-billion order from Chinese telecom operators in April.

The company yesterday did not provide China sales figures for the first half of this year, citing corporate policy.

Nokia Siemens Networks, one of the biggest telecom equipment vendors in the world, saw its sales revenue in China jump 24.3 percent from the previous quarter to 353 million euros in the second quarter, making China its best performing region.

Globally, the venture between Nokia and Siemens reported second-quarter operating loss of 188 million euros on a 21-percent sales slump.

Alcatel-Lucent held a global board meeting in Shanghai in April, the first time it was held outside Paris and New York, underscoring the growing importance the company attaches to China.

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