Rivals pile the misery on Marconi

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Marconi, the beleaguered telecoms group, is facing yet another crisis with rivals making massive inroads in one of its key markets.

As new chief executive Mike Parton struggles to restructure the group described by some City analysts as "worthless", French rival Alcatel is gaining ground on a business that produces a quarter of Marconi's revenues.

The group's market share has plummeted in "SDH" products, which smooth the flow of data through phone networks, say analysts. SDH sales are estimated to make up about a quarter of the company's total turnover and Marconi faces tough competition from Alcatel and US group Lucent. The fact that such a core part of the business is facing pressure is a serious concern. Marconi needs to keep sales up to pay the interest on its bulging debt of around £4bn, as it has already carried out radical cost-cutting and there seems little potential for further cuts.

"Marconi appears to be losing share of the SDH market, historically its most profitable communications business," said a research note from Williams de Broe. "In all probability, the shares are worthless, but this will not become apparent for some time," it added. Bernard Malhame, an SG Securities analyst, estimates Marconi's market share in Europe has dropped by some 4 per cent to around 20 per cent over the past six months.

Ben Cohen, at UBS Warburg, estimates the fall to be from around 30 per cent last year to the low 20s this year. But he said Alcatel is thought to have boosted its share from around 23 per cent to 35 per cent. He is anticipating an explanation of this in Marconi's interim results this week. "[Competitors] have been increasing market share and I expect they will be answering that," he said.

Other analysts, who wanted to remain anonymous, said the fall could be due to customers' concerns over its ability to stay afloat. Crippling debt is threatening its survival, and customers might not want to buy from a company if they think it is not going to be around for much longer. It is also thought Marconi's woes could be derived from the reining in of spending at BT, a key customer which has also had its fair share of troubles.

A spokesperson for Marconi declined to comment ahead of this week's interim results. But he did say: "Marconi believes it is still the market leader in SDH."

Lucent and Alcatel would not release exact figures on market share either, although both confirmed that their share is increasing.

As Marconi has already released figures for its performance in the first half, Tuesday's interim results are not expected to show any surprises. Marconi has already revealed that it expects to make an operating loss of £222m in the first half, and analysts are not expecting much deviation from this. Williams de Broe is expecting a pre-tax loss of £898m after write-offs.

The prices at which the group's £2.2bn of bonds are trading reflect the perilous state of the company. They are around a third of their issue price, with the market expecting a debt restructuring before too long. Analysts will be watching any details of trading that could indicate the performance of the company in the second half of the year.

They also expect Mr Parton to announce that he is selling off many of the group's non-core businesses, such as its washing machine-making joint venture with General Electric of the US.