Sale of enterprise business to China Huaxin likely despite encouraging of year financial results
Alcatel-Lucent has revealed that it is in discussions with technology investment company China Huaxin to sell off its enterprise phone business.
The French telecoms equipment maker included the news in its end-of-year financial results, where the company recorded encouraging results following losses last year.
China Huaxin’s offer for the acquisition of 75 percent of Alcatel-Lucent Enterprise valued the business at €268 million (£222 million). Under the terms of the deal, Alcatel-Lucent would retain a 15 percent minority interest in the business, but all contracts and employees would transfer to the Chinese company. The two companies are already partners in a joint venture in the Chinese market, targeting the sale of communications products and services to corporations in the country.
Alcatel said it expects to sign the deal by the second quarter of this year, and is aiming to close it by the third quarter pending regulatory approval.
The sale is part of a longer-term strategy by Alcatel’s new chief executive Michel Combes, who took over in April 2013 and pledged to deliver €1 billion in asset sales by 2015 as part of his ‘Shift Plan 2015’. The sale follows the news in December that Alcatel would be selling its US satellite-communications subsidiary LGS Innovations to an investor group led by US-based Madison Dearborn Partners for a reported $200 million.
In its end of year results, Alcatel revealed it had recorded fourth-quarter revenues of €3.93 billion euros (£3.26 billion). This was lower than analyst expectations; however the company also recorded an operating profit of €307 million (£255 million) and a gross margin of 34 percent, both of which were better than expected.
However, the company suffered from a major writedown on its mobile business and restructuring costs from layoffs, after announcing last October that it planned to cut 10,000 jobs worldwide over the next two years in order to save money. It also consumed more cash than it generated for the second year in a row, recording negative free cash flow of €636 million (£527 million).
This meant that the company still recorded a net loss for the year, although 2013’s loss of €1.3 billion (£1.07 billion) was significantly down from the €2 billion (£1.66 billion) loss in 2012. The reduction shows that the company had benefitted from major cost-cutting and a more focused products offerings, and is on track to fulfil the goals of its Shift Plan 2015, which focuses on continued cost reductions, cash generation, and profitable growth.
At the recent CES event, Alcatel had signalled that its consumer device division would be a major part of its efforts for 2014, revealing a new 5.5 inch smartphone and two tablet devices (pictured above), which were heralded by a company spokesman as, “a great first step in our product alignment for smartphones and tablets”.
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