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Update: Alcatel-Lucent - Encouraging Q4 Trends Give Confidence To The FY15 Outlook

In our most recent article on Alcatel-Lucent (ALU), we said that with much of the restructuring efforts now behind, investors' focus was likely to shift toward top-line growth. While the Q4 revenue beat we expected did not materialize (sales were in line with consensus), underlying trends were encouraging with +2% growth like-for-like after -3.8% in the previous quarter, driven by a strong performance of the core (and highly-profitable) IP routing segment (+15% vs. +2% in Q3). As for operating income, the headline number was disappointing as it came in 8% below expectations but when stripping out a EUR30m/$34m litigation one-off, it was bang in line. The underlying 8.5% margin benefited from a strong 34.7% gross margin (favorable revenue mix) and continued cost savings (albeit at a lower pace - EUR30m/$34m vs. EUR73m/$83m in Q3 - due to FX and some reinvestments).

In our view, this Q4 top-line performance is reassuring… Read More …