Last Friday, Alcatel-Lucent (NYSE:ALU) announced its first annual profit since its acquisition of Lucent Technologies in 2006. (The company had accumulated almost €10 billion in losses over five years.) The telecommunications equipment maker posted a net profit of €1.1 billion ($1.46 billion) in 2011, as compared to a €334 million loss in 2010. (The actual profit is slightly smaller as the numbers were boosted by €353 million of deferred tax assets in the US and €338 million from the sale of the company's Genesys unit.)
Reflecting industry-wide slowing sales in the US and Europe, its sales figures fell by 2.1% to €15.33 billion in 2011, exacerbated by a 13% drop in the last quarter. During the conference call, CEO Ben Verwaayen shared that the company forecasted further cost-cutting this year to improve on the 3.9% adjusted operating margin achieved last year.
Following the positive performance and the company's announced plans to auction some of its 29,000 patents, Alcatel-Lucent stocks rose by 12% last Friday to close at $2.19. (Since the start of the year, the stock has increased by 42%.) However, many analysts believe that the company still faces an uphill task to produce regular profits. Intensifying price competition in the industry, together with the pressure of lowering costs while maintaining research and development spending, means that the company has to cut costs even further and faster. WestLB analyst Thomas Langer said, "In the market, there was a relief that they made their numbers, but Alcatel-Lucent is not out of the woods yet." Gartner analyst Akshay Sharma said that the company will still have "a tough battle ahead, with strong competitors."
Given the above, Alcatel-Lucent is likely to continue its corporate strategy under CEO Verwaayen – to seek alternative revenue sources (e.g. licensing of its patents) and adopt tougher cost-cutting measures (e.g. assets sales, jobs elimination, focusing R&D on a few key technologies). Meanwhile, investors will also be closely watching the company's performance to see whether its recent results truly mark the beginning of a turnaround.