Q3 2010 Earnings
November 4, 2010
Introductory RemarksBen Verwaayen - CEO
All Rights Reserved © Alcatel-Lucent 2010 November 20103 | Q3 2010 Earnings
Safe Harbor For Forward Looking Statements
Except for historical information, all other information in this presentation consists of forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, as amended. These forward looking statements include statements regarding the future financial and operating results of Alcatel-Lucent such as, for example, an adjusted operating margin in the low to mid single-digit (between 1% and 5%) for 2010. Words such as “expects,” “anticipates,” “guidance,” “targets,” “projects,” “intends," “plans,” “believes,” “estimates,”“aim,” “goal,” “outlook,” momentum,” “continue,” variations of such words and similar expressions are intended to identify such forward-looking statements which are not statements of historical facts. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties are based upon a number of important factors including, among others: our ability to operate effectively in a highly competitive industry with many participants; our ability to keep pace with technological advances and correctly identify and invest in the technologies that become commercially accepted; difficulties and delays in our ability to execute on our strategic plan to adjust our product portfolio by boosting investment in certain segments and reducing spending in others, co-source certain business processes, focus on cash, and reduce costs; fluctuations in the telecommunications market; exposure to the pricing pressures in the regions in which we sell; the pricing, cost and other risks inherent in long-term sales agreements; exposure to the credit risk of customers; reliance on a limited number of contract manufacturers to supply products we sell and in particular to source components in a tight market; the social, political and economic risks of our global operations; the costs and risks associated with pension and postretirement benefit obligations; the complexity of products sold; changes to existing regulations or technical standards; existing and future litigation; difficulties and costs in protecting intellectual property rights and exposure to infringement claims by others; compliance with environmental, health and safety laws; the economic situation in general (including exchange rate fluctuations) and uncertainties in Alcatel-Lucent’s customers’ businesses in particular; customer demand for Alcatel-Lucent’s products and services; control of costs and expenses; international growth; conditions and growth rates in the telecommunications industry; and the impact of each of these factors on sales and income. For a more complete list and description of such risks and uncertainties, refer to Alcatel-Lucent's Annual Report on Form 20-F for the year ended December 31, 2009, as well as other filings by Alcatel-Lucent with the US Securities and Exchange Commission. Except as required under the US federal securities laws and the rules and regulations of the US Securities and Exchange Commission, Alcatel-Lucent disclaims any intention or obligation to update any forward-looking statements after the distribution of this presentation, whether as a result of new information, future events, developments, changes in assumptions or otherwise.
All Rights Reserved © Alcatel-Lucent 2010 November 20104 | Q3 2010 Earnings
Q3 2010 Highlights
Full year guidance maintainedStrong sequential increase expected for top-line & profits
Strong market traction and customer endorsement
Continuing progress in our transformation journeyBack to top-line growth & improved profitability
All Rights Reserved © Alcatel-Lucent 2010 November 20105 | Q3 2010 Earnings
Q3 2010 Highlights: NetworksStrong momentum accross all divisions
Acceleration of growth in IP/MPLSwith double-digit growth in all regions
In Wireless, double-digit growth in all major technologies: W-CDMA, CDMA & GSM
Turning point for Terrestrial Opticswith growth in WDM, Intelligent Optical Network
& microwave transmission
Improvement in Wireline driven by VDSL & PON
All Rights Reserved © Alcatel-Lucent 2010 November 2010
28%
30%
32%
34%
36%
38%
40%
42%
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
600
700
800
900
1000
1100
in % of Networks Sales
in M Euros
6 | Q3 2010 Earnings
Q3 2010 Highlights: NetworksInvest to win strategy paying off
*Products supporting our HLN strategy:IP, DWDM, WT, WCDMA, LTE, IPDSLAM, FTT&OLT, IMS Core
Next Gen. Product Sales: +23% YoY+ 14% QoQ
Next Gen. Product Sales: +23% YoY+ 14% QoQStrong growth and increased share
of our next generation product sales*
All Rights Reserved © Alcatel-Lucent 2010 November 20107 | Q3 2010 Earnings 7 | Q3 2010 Earnings
High Leverage NetworkTM
Strong market traction and customer endorsement – Highlights from Q3
N°1 in IP/Ethernet cell site router/gateways
Growing wireless market share:16.3% in Q2 (from 13.6% in Q2’09)WCDMA: Best quarter ever, with 33%YoY revenue growth
Converged VDSL/GPON with TDC
41% of Q3 Networking portfolio sales on HLN-related products
Strong momentum around 100G, with:
1st 100G combined IP/Opticaldeployments (360networks, PT Telkom)
100GE growing shipments (China Telecom, Portugal Telecom, Verizon)
1st single-carrier 100G coherent WDM deployments (Etisalat, Softbank, T-Systems)
LTE: 7 contracts & 58 trials
Small Cells: 14 contracts & 20+ trials
Driving copper & fiber innovations:
Vectoring, Bonding & Phantom mode market trials (Turk Telecom)
Broadband Innovation of the Year (BB InfoVision Awards) with Phantom Mode
World 1st 10G symmetrical GPON market trials (Verizon, Portugal Telecom)
IP Routing: Best quarter ever, with 35% YoY revenue growth;N°2 position with 20% market share
All Rights Reserved © Alcatel-Lucent 2010 November 20108 | Q3 2010 Earnings 8 | Q3 2010 Earnings
Q3 2010 Highlights: Applications & ServicesResumed growth and profitability improved
Strong growth in data networking for Enterprise
New 10GigE switch released
Recent wins & large contracts in Strategic Industries driving growth in Services
Solutions for digital content delivery gainingmomentum in Network applications
Digital Media Store for Telus, Mobile advertising with Etisalat
All Rights Reserved © Alcatel-Lucent 2010 November 20109 | Q3 2010 Earnings 9 | Q3 2010 Earnings
Q3 2010 HighlightsBy geographies: rising demand across all regions
+22% yoy growth in North AmericaWireless & IP being the growth engine
India & China driving recovery in APACSales doubling in India
Growth in Eastern EuropeDriven by Russia
Improvement in Western Europe
All Rights Reserved © Alcatel-Lucent 2010 November 201010 | Q3 2010 Earnings 10 | Q3 2010 Earnings
Q3 Operational highlights
On track for fixed costs reduction
Level of inventories maintained
to support top-line growth
Gross margin driven by product & geographic mix
All Rights Reserved © Alcatel-Lucent 2010 November 201011 | Q3 2010 Earnings 11 | Q3 2010 Earnings
Outlook
Significant top-line sequential increase
Strong leverage effect on profitability
Full-year 2010 outlook maintained
Q3 2010 ResultsPaul Tufano - CFO
All Rights Reserved © Alcatel-Lucent 2010 November 201013 | Q3 2010 Earnings
Q3 ’10 Adjusted P&L
In Euro Million Q3 '10 Q3 '09 YoY Q2 '10 QoQ
Revenues 4,074 3,687 10.5% 3,813 6.8%
Gross profit 1,377 1,232 145 1,377 0Gross margin 33.8% 33.4% 0.4 pt 36.1% -2.3 pt
R&D Gross (633) (573) 10.5% (621) 1.9%in % of revenues 15.5% 15.5% 0.0 pt 16.3% -0.7 pt
Capitalization / Other 4 1 (9 )
R&D Net (629) (572) 10.0% (630) -0.2%in % of revenues 15.4% 15.5% -0.1 pt 16.5% -1.1 pt
SG&A (687) (671) 2.4% (719) -4.5%in % of revenues 16.9% 18.2% -1.3 pt 18.9% -2.0 pt
Total OPEX (1,316) (1,243) 5.9% (1,349) -2.4%in % of revenues 32.3% 33.7% -1.4 pt 35.4% -3.1 pt
Op. income (loss) 61 (11) 72 28 33Operating margin 1.5 % -0.3 % 1.8 pt 0.7 % 0.8 pt
All Rights Reserved © Alcatel-Lucent 2010 November 2010
10 000
11 000
12 000
13 000
14 000
15 000
16 000
17 000
18 000
Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10
31.5%
32.0%
32.5%
33.0%
33.5%
34.0%
34.5%
35.0%
35.5%
Sales
GM as % of sales
14 | Q3 2010 Earnings 14 | Q3 2010 Earnings
Consistent & continuous gross margin improvement
*Gross margin as a % of sales of the last 4 trailing quarters
Gross margin (%) & Sales from 2007*
All Rights Reserved © Alcatel-Lucent 2010 November 201015 | Q3 2010 Earnings
Q3 ’10 Revenue Breakdown by Operating Segments
In Euro Million
RevenuesQ3 '10 Q3 '09
YoY Current
YoY Constant *
Q2 '10QoQ
CurrentQoQ
Constant *
Networks 2,459 2,231 10.2% 1.8% 2,304 6.7% 6.5%IP 366 283 29.3% 19.4% 318 15.1% 15.4%
Optics 651 706 -7.8% -13.8% 622 4.7% 4.3%
Wireless 1,068 860 24.2% 14.0% 1,021 4.6% 3.9%
Wireline 396 404 -2.0% -9.4% 366 8.2% 8.5%
Other & eliminations (22) (22) 0.0% nm (23) -4.3% nm
Applications 499 473 5.5% -0.8% 489 2.0% 2.5%Enterprise Applications 299 279 7.2% 1.4% 305 -2.0% -1.6%
Networks Applications 206 199 3.5% -3.5% 188 9.6% 10.1%
Other & eliminations (6) (5) nm nm (4) nm nm
Services 948 869 9.1% 1.8% 883 7.4% 7.7%Other & Eliminations 168 114 nm nm 137 nm nmTotal 4,074 3,687 10.5% 2.9% 3,813 6.8% 6.8%
* YoY & QoQ change, at constant FX rate & perimeter
All Rights Reserved © Alcatel-Lucent 2010 November 201016 | Q3 2010 Earnings
Q3 ‘10 Operating Income Breakdown by Operating Segments
In Euro Million
Adj. operating income (loss)Q3 '10 Q3 '09
YoY Current
Q2 '10QoQ
Current
Networks 31 (26) nm 55 nmin % of revenues 1.3% -1.2% 2.4 pt 2.4% -1.1 pt
Applications 15 0 nm (17) nmin % of revenues 3.0% 0.0% 3.0 pt -3.5% 6.5 pt
Services 28 38 nm 19 nmin % of revenues 3.0% 4.4% -1.4 pt 2.2% 0.8 pt
Other & Eliminations (13) (23) nm (29) nmTotal 61 (11 ) nm 28 nm
All Rights Reserved © Alcatel-Lucent 2010 November 2010
North America 11 %Asia Pacific 7 %Europe 0 %RoW -7 %
17 | Q3 2010 Earnings
RoWRoW Asia PacificAsia Pacific
EuropeEurope North AmericaNorth America
~30% ~36%
~21%~13%RoWRoW Asia PacificAsia Pacific
EuropeEurope North AmericaNorth America
~33% ~33%
~20%~14%
YoY Revenue Δ (in local currencies)
Q3 ’10 Revenues Geographical Breakdown
Q3 ’10 Total Revenue: €4,074M
Q3 ’09 Total Revenue: €3,687M
All Rights Reserved © Alcatel-Lucent 2010 November 2010
Balance Sheet Highlights
In Euro Million Sept. 30, '10 June 30, '10 Sept. 30, '09
Goodwill 4,311 4,583 4,129
Other intangible assets 2,096 2,354 2,249
Other non-current assets (excl. market. sec & pensions) 2,762 2,985 2,921
Operating working capital 890 960 1,165Net assets/(liabilities) held for sale 148 80 53
Net cash / (debt) (190) 107 592
Shareholders’ equity - Group share 2,377 2,473 3,603
Minority interests 631 675 537Net Pensions & OPEB 3,211 3,694 2,906
Non current liabilities (excl.debt & pensions) 1,373 1,460 1,335
Reserves 1,969 2,265 2,074
Other current liabilities/(assets) net 456 502 654
All Rights Reserved © Alcatel-Lucent 2010 November 201019 | Q3 2010 Earnings
Operating Working Capital
In Euro Million Sept 30, 2010 June 30, 2010 Sept 30, 2009
Net inventories* 2,567 2,669 2,171
Net receivables* 3,323 3,467 3,481
Payables & progress payments (5,000) (5,176) (4,487)
OWC as reported ** 890 960 1,165
As % of revenues (12 months) 5.9% 6.5% 7.2%
Trailing 4 quarter revenues 15,101 14,713 16,144
OWC before sales of receivables 1,524 1,601 1,784
As % of revenues (12 months) 10.1% 10.9% 11.1%
* Including amounts related to construction contracts
** Reserves on construction contracts have been reclassified to Provisions in the statement of financial position
All Rights Reserved © Alcatel-Lucent 2010 November 201020 | Q3 2010 Earnings
Cash Flow Statement
In Euro Million Q3 '10 Q2 '10 Q3 '09
Net (debt)/cash at beginning of period 107 512 28 Adjusted operating income 61 28 (11)
Depreciation & Amort; OP non cash; other 275 66 197
Op. Cash Flow before change in WCR* 336 94 186 Change in operating WCR (82) (202) 430
Change in other WCR (61) 50 123
Operating Cash Flow** 193 (58) 739 Interest (92) (45) (41) Taxes (61) (46) (20)
Cash contribution to pension & OPEB (56) (64) (37) Restructuring cash outlays (73) (76) (122)
Cash flow from operating activities (89) (289) 519 Capital expenditures (incl. R&D cap.) (184) (146) (157)
Free Cash Flow (273) (435) 362 Discontinued, Cash from financing & Forex (24) 30 202
Change in net(debt)/cash position (297) (405) 564
Net (debt)/cash at end of period (190) 107 592
* Before changes in working capital, interest/tax paid, restructuring cash outlay and pension & OPEB cash outlay
**Operating cash flow now defined as cash generated from operations after changes in working capital but before interest/tax paid, restructuring cash outlay and
pension & OPEB outlay
All Rights Reserved © Alcatel-Lucent 2010 November 201021 | Q3 2010 Earnings
Funded Status of Alcatel-Lucent Pensions & OPEB (IFRS)
In Euro Million
Pensions OPEB Pensions OPEB Pensions OPEBFair value of plan assets 27,017 394 28,480 490 24,380 400(In USD Million) 36,873 538 34,948 601 35,700 586
Benefit obligations (25,505) (3,315) (27,123) (3,649) (22,957) (3,090)(In USD Million) (34,809) (4,524) (33,283) (4,478) (33,616) (4,525)
1,512 (2,921) 1,357 (3,159) 1,423 (2,690)
Funded Status (In USD Million)
Asset ceiling (1,802) - (1,892) - (1,639) -
Net balance sheet (3,694)
(1,923)
(3,211)
Sept 30, '10 June 30, '10
(1,802)(2,211)
(1,409)
Sept 30, '09
(1,267)(1,855)
(2,906)
All Rights Reserved © Alcatel-Lucent 2010 November 201022 | Q3 2010 Earnings
Outlook
2010 Guidance
• For 2010, Alcatel-Lucent continues to expect nominal growth (defined as between 0% and 5%) for the telecommunications equipment and related services market.
• For 2010, Alcatel-Lucent aims to reach an adjusted operating margin in the low to mid single-digits (defined as between 1% and 5%).
Questions & Answers
Additional Information
All Rights Reserved © Alcatel-Lucent 2010 November 201025 | Q3 2010 Earnings
Q3 2010 Reported and Adjusted Results
Q3 '10 Reported
PPAimpacts
Q3 '10 Adjusted
In Euro Million
Revenues 4,074 0 4,074
Gross profit 1,377 0 1,377
SG&A (718) 31 (687)
Net R&D (670) 41 (629)
Operating income (loss) (11) 72 61
Restructuring (71) 0 (71)
Post-retirement benefit plan amendment 30 0 30
Litigations 10 0 10Financial income (loss) 61 0 61
Share in net income of equity affiliates 4 0 4
Income Tax 23 (29) (6)
Income from discontinued operations 0 0 0
Net Income 46 43 89
Minority Interest (21) (21)
Net Income (Group share) 25 43 68
Diluted EPS, in € 0.01 0.03
# shares (Million) 2,275.7 2,640.5
All Rights Reserved © Alcatel-Lucent 2010 November 201026 | Q3 2010 Earnings
Restatement of 2009 Breakdown by Operating Segments
In Euro Million
Revenues Q1 '10 Q2 '10 Q3 '10 Q1 '09 Q2 '09 Q3 '09 Q4 '09 FY 2009
Networks 1,928 2,304 2,459 2,219 2,384 2,231 2,242 9,076IP 272 318 366 288 286 283 320 1,177Optics 567 622 651 657 728 706 763 2,854Wireless 819 1,021 1,068 915 972 860 800 3,547Wireline 298 366 396 393 424 404 398 1,619Other & eliminations (28) (23) (22) (34) (26) (22) (39) (121)
Applications 416 489 499 444 462 473 535 1,914
Enterprise Applications 271 305 299 276 298 279 317 1,170Networks Applications 149 188 206 173 173 199 232 777Other & eliminations (4) (4) (6) (5) (9) (5) (14) (33)
Services 772 883 948 797 873 869 1,030 3,569Other & Eliminations 131 137 168 138 186 114 160 598Total 3,247 3,813 4,074 3,598 3,905 3,687 3,967 15,157
Adj. operating income (loss) Q1 '10 Q2 '10 Q3 '10 Q1 '09 Q2 '09 Q3 '09 Q4 '09 FY 2009
Networks (128) 55 31 (154) (136) (26) 19 (297)in % of revenues -6.6% 2.4% 1.3% -6.9% -5.7% -1.2% 0.8% -3.3%
Applications (27) (17) 15 (55) (30) 0 80 (5)in % of revenues -6.5% -3.5% 3.0% -12.4% -6.5% 0.0% 15.0% -0.3%
Services (40) 19 28 (63) 87 38 141 203in % of revenues -5.2% 2.2% 3.0% -7.9% 10.0% 4.4% 13.7% 5.7%
Other & Eliminations 0 (29) (13) 18 17 (23) 31 43Total (195) 28 61 (254) (62) (11) 271 (56)
All Rights Reserved © Alcatel-Lucent 2010 November 201027 | Q3 2010 Earnings 27 | Q2 2010 Earnings
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