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Wednesday, 30 May, 2001, 18:59 GMT 19:59 UK
Alcatel share bounce fades
Alcatel website
Alcatel will exit mobile handset production
Alcatel's shares experienced a short-lived revival after it announced the breakdown of its merger with the US company Lucent Technologies.

After the Paris market opened, Alcatel's shares traded up nearly 5%, before falling below Tuesday's close.

At 1030 GMT, they were down 0.85 euros at 30 euros.

By the time the French stock exchange closed, the stock had lost 5.2% of its value, having fallen 1.59 euros to 29.26 euros.

Alcatel's shares have fallen almost 20% since news of the proposed merger with Lucent leaked at the end of April.

Merger concerns

The original share slide was sparked by fears that a plan to issue new stock for financing the merger would dilute existing shareholdings.

The deal between Alcatel and Lucent was widely expected to complete on Wednesday, but the two companies said discussions had not resulted in any agreements and had been terminated.

Investor relief at the collapse of the deal was tempered by concerns after Alcatel announced a restructuring and forecast a second quarter loss of about 3bn euros in its telecoms division.


On Tuesday, Alcatel said it would focus on building and delivering next-generation telecoms networks.

As a result of the new strategy, the company will terminate mobile phone manufacturing in one of its plants, and possibly outsource production in another.

The move mirrors a similar decision earlier this year by Ericsson of Sweden to give up mobile handset production, outsourcing manufacturing to several smaller firms.

Ericsson remains the world's biggest network equipment supplier.

Alcatel blamed the possible 3bn euros loss in its telecom division on "market uncertainties".

Massive downgrades?

Traders said they expected the stock to drop through 30 euros - on the back of the earnings warning.

"From the Alcatel figures we are expecting massive downgrades over the next three to four months," said one Paris trader.

"For us the telecoms side is worse than expected."

Shares in Alcatel's optical components unit dropped nearly 3% after it also cut 2001 sales and margin forecasts.

Analysts had been expecting a downward revision after Canada's 360-networks - a key Alcatel client - delayed two major undersea projects.

Network provider

Established in 1898, Alcatel is a major player in providing next generation networks, such as telecoms infrastructure and the backbone for the internet.

It employs 130,000 people, operating in 130 countries, and reported sales of 31bn euros in 2000.

It has a particularly strong market base in Europe, where it currently generates about 60% of its consolidated net sales.

In 1998, however, the US became Alcatel's largest telecoms market, and, in 1999, the US represented approximately 18% of Alcatel's consolidated net sales.

The company is headed by 62-year old chairman and chief executive Serge Tchuruk, who is well-regarded by analysts for his performance at Alcatel as well as in previous positions as chairman and chief executive of oil giant Total in the 1990s and managing director of chemicals and pharmaceuticals firm Rhone-Poulenc (now known as Aventis) in the 1980s.

Mr Tchuruk had been tipped to head up the merged Alcatel-Lucent as well.

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See also:

30 May 01 | Business
What now for Lucent
30 May 01 | Business
Alcatel-Lucent merger is off
29 May 01 | Business
Alcatel-Lucent deal nears completion
21 May 01 | Business
Alcatel-Lucent deal faces obstacles
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