Alcatel-Lucent Shares Sink on Profit Warning

By Features FOXBusiness

Alcatel-Lucent (ALU) warned on Tuesday that it expects to post a second-quarter operating loss and miss a key performance goal as demand continues to slump in Europe and fierce competition and pricey contracts weigh heavily on its bottom line.

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The French telecom-equipment maker said it will likely post an adjusted quarterly operating loss of 40 million euros ($49 million) on revenues above 3.5 billion euros ($4.3 billion). That revenue figure is poised to miss the Street's view of $4.7 billion when the company reports on July 26. 

The company's shares traded in New York skidded 18% on the news, marking a 78% year-to-year plunge.

Alcatel-Lucent said the figures reflect “good sequential growth in sales with all geographies and divisions growing,” but a slower-than-expected improvement in business mix.

"In light of year-to-date performance and the difficult macroeconomic environment, Alcatel-Lucent won't achieve its adjusted operating margin guidance for 2012," the company said in a statement. The company had earlier predicted it would top last year’s margin of 3.9%. Operating margins are a key profitability metric. 

The Parisian company continues to cut expenses and says it has decreased fixed costs by 100 million euros ($123 million) compared with the year-earlier period. It expects the second half of the year to be better than the first.

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However, competition from Asian rivals like Huawei Technologies and ZTE Corp. that offer cheaper products have weighed heavily on Alcatel-Lucent’s operations.

While Alcatel-Lucent has undergone major restructuring changes over the last five years, it continues to bleed money on expensive contracts, such as the deployment of a 4G network for Sprint (S).