Alcatel warns of uncertainty in Europe Alcatel-Lucent, warned of uncertainties in its home European market this year following a slump in first-quarter sales and weaker margins, sending shares of the network equipment maker down almost a fifth. Alcatel and its competitors are being hurt by telecoms operators, which are also facing declining revenues, and so are cutting back spending. They are also demanding keener prices for upgrading networks given increased competition from Asian rivals such as Huawei and ZTE. This fed through to lower profitability for Alcatel, which on Thursday said that its gross margin fell to 30.3 per cent in the three months to March, from 35.3 per cent per cent last year, causing analysts to question its full-year target. Shares tumbled 14 per cent to €1.27 after dropping as much as 17 per cent earlier. However, Ben Verwaayen, chief executive, admitted it had been a "slow start in a volatile environment," but reiterated profit and cash targets for the year. Alcatel said it would have better visibility on profitability at the end of the second quarter, during which it expects margins to improve from the first quarter, a period when margins are traditionally weaker. Mr Verwaayen said, however, that the gross margin was "not at the level we would have liked," pointing to the negative impact of lower volume and an unfavourable revenue mix, particularly in its services division since the last quarter of 2011. He said the company would roll out "a number of significant next-generation networks," in particular in North America and China, and expand in countries such as Japan and in Latin America. But he added that "market uncertainties remain high in Europe." First-quarter revenue dropped 12.3 per cent to €3.2bn, in line with analyst expectations and in part reflecting the sale of the Genesys business unit. Alcatel reported an adjusted operating loss of €221m, from a profit of €4m a year earlier. The Genesys sale boosted the company's net profit of €398m. Ericsson, its European rival, also reported tumbling margins and revenues this week, while Nokia Siemens Networks is in the middle of a corporate restructuring that will see the loss of 17,000 jobs worldwide. Alcatel's market capitalisation of €3bn is a mere 10th of the €30bn equity value of the two companies when they merged in 2006, and the merger process was widely regarded as poorly executed.