French telecommunications giant Alcatel-Lucent (ALU) today reported that it made a fourth-quarter 2009 profit of 46 million Euros (about $63 million) on revenues of 3.97 billion euros. That revenue figure is nearly 20% lower than the year ago. EPS came in at 0.02 euros, or $0.03. In the fourth quarter of 2008, Alcatel-Lucent lost 3.89 billion euros, so this quarter was significantly better than that.

Yet the company is still suffering, and trails far behind rival Cisco Systems (CSCO) in both share price and outlook. Alcatel-Lucent’s outlook for 2010 includes an adjusted operating margin of between 1% and 5%. For 2011 the company “continues to aspire” to a margin of 5%-9%, “depending on market growth.”

That is very weak tea. Cisco has projected revenue growth of as much as 23%-26% for the current quarter. Alcatel-Lucent has spent the last year reining in costs, and it doesn’t have much to look forward to in 2010.

The company’s outlook brightens a little for 2011 because that is when AT&T (T) will begin using Alcatel-Lucent equipment to deploy its 4G mobile broadband support. Verizon (VZ) also has a deal with Alcatel-Lucent to supply Long-Term Evolution (LTE) equipment. Cisco, through its acquisition of Starent Networks, is also a potential competitor in the LTE market.

The build-out of LTE networks is where Alcatel-Lucent hopes to win. The company has begun technology trials for their equipment with China Mobile (CHL), Cox Communications and other telecom providers. Alcatel-Lucent claims that it has 40 trials going with 23 different operators.

Now, all the company has to do is hold on for 2010, and that seems to be what they’re counting on. Shipments of wireless equipment in the fourth quarter were down almost 34%. Demand for the LTE equipment just has not developed fast enough to make up for the older technologies like GSM where sales continue to fall.

The good news for Alcatel-Lucent is that its two largest customers for LTE equipment, AT&T and Verizon, have no choice but to go ahead with building the 4G networks. The bad news is that with profits for the wireless companies so hard to come by, a contract re-negotiation is possible or, even worse, a delay in implementing the 4G networks.

Alcatel-Lucent’s prospects for 2010 are weak, and its prospects for 2011 depend too much on just a few customers. That is a tenuous position, especially when a company like Cisco could quickly rev up competition for your potentially best-selling products.

Alcatel-Lucent’s share price is down about 12% so far today on three times normal volume. Bad news travels fast.

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