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Alcatel 3Q profit triples
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October 31, 2000: 3:49 p.m. ET
Income jumps to $250M behind strong optical gear sales, Newbridge buy
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LONDON (CNNfn) - French telecom equipment maker Alcatel SA reported Tuesday that third-quarter profit more than tripled, topping forecasts, amid strong sales of optical components used to speed Internet traffic over cable lines.
Europe's No. 2 telecom equipment maker, which credited its $7.1 billion buyout of Canadian telecom switch company Newbridge Networks for part of the profits jump, said third-quarter net income increased to  297 million ($250 million), or 0.25 a share, from 83 million, or 0.09 a share, a year ago. Revenue jumped 50 percent to 7.9 billion. 
Alcatel's top executive, in an interview with CNNfn, credited strong growth in its core carrier network business, where sales doubled from last year in the third quarter to nearly 3.3 billion.
"We have some very positive points at Alcatel, such as in fast Internet access and optical gear," said Chief Executive Serge Tchuruk. He dismissed recent speculation that market demand for network equipment is drying up. "I keep hearing that the European market is going to slow down in telecom and the like and, frankly, I don't believe it."
Investors and analysts were broadly upbeat about the numbers. Shares of Alcatel (PCGE) rallied 2.50, or 3.5 percent, to 73.50 in Paris trade. At that level, the stock is up 61 percent on the year.
"The figures are better than expected and the outlook is extremely positive -- that's what people were looking at," BNP Equities analyst Francois Travaille told Reuters. He said he is maintaining his "buy" rating for Alcatel and a price target of 100 per share.
Added Stuart Jeffrey, an analyst with HSBC who also has a "buy" rating and 100 price target on Alcatel: "They were slightly ahead in terms of sales, and [profit] margins were slightly lower than we had expected." Operating margin is a measure of a company's underlying profitability, calculated by expressing operating profits as a percentage of revenue.
A tough market these days
The results from Alcatel come amid troubles for its top North American rivals. Murray Hill, N.J.-based Lucent Technologies Inc. (LU: Research, Estimates) recently unveiled its fourth profit warning this year, and Brampton, Ontario-based Nortel Networks Corp. (NT: Research, Estimates) last week fell short of analysts' revenue growth targets, sending its stock into a tailspin.
"We are very competitive, actually; we did much better than others," said Tchuruk, adding that network equipment makers, being in a volatile market, need to demonstrate "discipline" about setting profit goals and meeting them.
The third-quarter performance was underpinned by data and optical networking sales, which together combined for an 88 percent increase.
Tchuruk said Alcatel is expecting revenue in 2001 to grow faster than the market, "with early indications showing growth in our telecom business of at least 25 percent." The company recently revised upward its estimated growth rate for 2000 to 30 percent.
Buyouts not a priority
In the wake of the Newbridge buyout, announced in February, Tchuruk said the company is not in any rush to pursue new deals.
"We do acquire when we need to complement whatever we've got ... but we aren't one of these companies that is, to a large extent, acquiring technology from outside parties," said Tchuruk. "If there are opportunities, we may pursue them, but it's not a priority goal within Alcatel these days."
Alcatel Optronics, for which Alcatel issued tracking shares earlier this month, said in a statement it expected 2000 sales to more than double and operating profit to more than triple from 1999.
Alcatel also postponed the listing of its Nexans cable unit, expected in November, until next year due to unfavorable market conditions. Nexans ranks as the world No. 3 in the global cables industry behind Italy's Pirelli and Japan's Sumitomo. It expects sales of about 4.6 billion in 2000.
Separately, Alcatel Tuesday announced that it would supply up to $2 billion of undersea and land-based equipment to 360networks, a global network builder.
The alliance will make Alcatel 360networks' preferred supplier. Alcatel will build a submarine optical cable across the Pacific, connecting the United States, Canada and Japan for 360networks. It will also place a submarine cable across the Atlantic.
In return, Alcatel will purchase $1 billion of 360networks preferred stock, which is convertible into common stock in two installments, due in 2012.
Also, Alcatel and 360networks will form a technical advisory group to support further joint efforts between the two companies. 
-- from staff and wire reports
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