Lucent Technologies, which plans to merge with French equipment manufacturer Alcatel, reported on Tuesday a drop in second-quarter earnings, resulting in part from litigation charges and lower sales.

Net income in the second quarter ending March 31 tumbled to US$181 million, or $0.04 per share, from $267 million, or $0.06 per, in the same period the year before. Earnings were, however, better than the $0.03 forecast by analysts polled by Thomson Financial.

Earnings were hit by a charge of $278 million, resulting from litigation between Lucent and bankrupt broadband service provider Winstar Communications.

Second-quarter net revenue dipped 8 percent to $2.14 billion from $2.34 billion.

Although North American sales for the first half of 2006 were slightly below the previous year’s period, "the fundamentals of the business remain solid," Chairman and Chief Executive Officer Patricia Russo said in a conference call with analysts.

Russo pointed to tough business conditions in China and India that have resulted in lower-than-anticipated sales. Price pressure is fierce in India, she said, and China has delayed issuing third-generation mobile broadband networks.

Lucent expects the two countries to account for a $500 million decline in revenue for its 2006 fiscal year, Russo said.

Although the Murray Hill, N.J., manufacturer expects sales to pick up "significantly" in the second half of its fiscal year, revenue for the year will be down, said Chief Financial Officer John Kritzmacher.

Customer reaction has been "very positive" about the planned merger with Alcatel and the opportunities it offers for a combined company, Russo said. Although 2006 will be a year of huge change for Lucent, the company "will remain focused," she said.

"Lucent continues to struggle, but at least tomorrow looks financially better with the merger," said independent industry analyst Jeff Kagan, in an e-mail commentary. "The numbers are weaker, not stronger and that is always a worry. The coming merger with Alcatel is expected to help."

-John Blau, IDG News Service

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