Alcatel boss Patricia Russo is fighting for her share of a tough market

Alcatel blamed reduced investment by US customers for lower sales.

Shares in Alcatel fell by more than 9% on the news, the latest in a series of negative announcements from the firm.

The company was formed when Alcatel took over US rival Lucent in 2006 and analysts say this merger is still creating difficulties.

Rough ride

Per Lindberg, an analyst at Dresdner Bank. said the merger of Alcatel and Lucent had not dispelled underlying problems that both companies already faced.

"This is the merger of shared dilemmas. Neither Alcatel nor Lucent could compete on its own." Mr Lindberg said.

The company started 2007 with a warning that costs resulting from the merger would hit annual results.

The telecoms sector remains fiercely competitive and tough opposition from Sweden's Ericsson and other players has forced down prices in Alcatel's product range, cutting into profit margins.