Alcatel-Lucent Earnings Call Highlights: Capital Expenditures and Margins, Patent Deal Details

On Friday, Alcatel-Lucent ADR (NYSE:ALU) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Capital Expenditures and Margins

Sebastien Sztabowicz – Landsbanki Keppler: I have got one question on (yielding) in the U.S. market which grew quite slowly than during 2012. Could you please elaborate a little bit on the mix of CapEx you expect for the coming quarters and also the potential implication on your margins profile?

Ben Verwaayen – CEO: I don’t think that we’re going to have the ability to be quarter (perform) specific, but most of the U.S. market has to do, as I said, was the mobility in the cloud and because it has to do with the proliferation of all these tablets and the smartphones and the explosion that you can see in applications, you may have seen what happened in the last week of December in the U.S. on the number of phones sold, on the number of iPads sold, and it gives you a clear indication that if you want to do precision landing per absolute quarter, you will be in a very difficult position. On margins, maybe you want to say a few words.

Paul Tufano – EVP and CFO: Look I think on margins, we are pretty optimistic about maintaining margins in the U.S. Now, obviously there will be mix changes. (indiscernible) We know CDMA will go down year-on-year. The effect of that will be offset by LTE growth and growth in another parts of our business such as IP and the like. We’re very hopeful that the new products driven by the FP3 processor actually help us fill that gap quite nicely.

Patent Deal Details

Achal Sultania – Credit Suisse: So my question is around the details of the structuring of this patent deal, and I appreciate you talk about this arrangement to generate substantial proceeds. Can you give us some range of what numbers you’re looking for? Is it the gross amount or the net amount post the charges incurred by RPX? The follow-up one on this, will this be a lump sum payment from RPX or will there be some ongoing royalties as well?

Paul Tufano – EVP and CFO: First of all, let me first explain the structure of this arrangement. First off, this is a limited time offer, and the way it will work will be RPX at a certain period of time to provide us a set of interested parties that want to license our product portfolio. If that amount is achieved, we will go forward to the next breakpoint at which time there is another check point. The arrangement will be between the individual company and Alcatel-Lucent. RPX is acting as a middleman in this case and the value of the transaction with RPX is the fact that RPX has a very large base of members that range a number of different industries. So, we viewed it as an opportunity to increase our breadth of coverage in terms of potential licensing activity with companies we probably would never have address before and to do it in a manner which is extremely positive. Now the patent portfolio that is being licensed is a specific portfolio. In future years if this relationship proves to be beneficial, there is an opportunity for additional licensing as we add to our portfolio. So, as I said before, I think, this gives – it’s an innovative approach. It gives us the flexibility to go to market in a different way than we did before. We have significant flexibility in terms of what we choose to do going forward, and we have an expectation of a dollar value or euro value that’s substantial, but we’re not going to disclose that, because RPX has to work with their customer base to get toward that number.

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