Alcatel plunges on profit warning

Shares in the French telecom equipment maker plummet after it warns that its earnings will be hurt by economic turmoil in Southeast Asia and Russia.

Dawn Kawamoto
Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Shares in telecommunications equipment maker
Alcatel plummeted by as much as 39 percent in morning trading, after the French company warned that its performance for the year will be hurt by economic turmoil in Southeast Asia and Russia.

Alcatel's shares dropped to as low as 19, down from yesterday's close of 31.3125.

BT Alex Brown downgraded the company to "market perform" from "buy."

The preliminary warning and downgrade came despite the company's announcement today that it clinched a multiyear deal with data networking company Ascend Communications (See related story). Under the terms of the deal, Alcatel will work with Ascend on building new high-speed Internet access networking equipment.

But Alcatel also said that its overall performance for the year is expected to fall short of Wall Street's expectations.

Many telecommunication companies have been sharply cutting their investments in equipment and Alcatel apparently is following suit. The company cited the deepening financial crisis in Asia and Russia as a factor in its decision to issue its profit warning.

Nevertheless, the company said it would try to bolster its operating profit by ramping up its growth strategy in key telecom markets like the United States and in the Internet space as well.

Alcatel said that, during the first half of the year, its sales rose 2.5 percent from the previous year to $10.8 billion. Its orders climbed by 3.5 percent to $11.3 billion, while its operating income jumped by 15 percent to $2.7 billion.

Reuters contributed to this report.