Alcatel-Lucent (NYSE: ALU) reported a drop in profit for its first quarter on Friday, saying lower volumes in wireless and core networks, as well as continued investments hampered growth.

The company said that adjusted net income for its first quarter fell 35 percent to 199 million euro ($269 million), or .09 euro per share (12 cents), under the 306 million euro ($413 million) , or .13 euro (18 cents) per share it raised last year.

The French-American telecom equipment maker saw revenue fall by 8 percent to 3.9 billion euro ($5.27 billion).

The latest quarter included a one-time gain of 677 million euro ($914 million) from the sale of satellite, transport and security assets to Thales.

Last month, the company warned that its transatlantic merger would take a toll on its sales and margins in an earnings pre-announcement. It believed sales would pick up again, however, from the second-quarter into the end of its fiscal year.

The world's second-largest supplier of telecom and mobile equipment said that it incurred an operating loss of 244 million euro.

Sales were hampered by sluggish second-generation wireless activity in some emerging markets as well as slower sales of core legacy products. The wireless division reported a 15 percent decline at a constant euro/USD exchange rate, or a 20 percent decline at the current exchange rate, to 1.4 billion euro ($1.89 million).

The Paris-based group said it remained confident in its ability to resume growth as the year unfolds.

Based on the strong order flow we are seeing across all businesses, we anticipate solid sequential growth as the year progresses, with our second quarter 2007 revenue expected to grow approximately 10% from the first quarter 2007 at a constant Euro/USD exchange rate, said Patricia Russo, CEO.

Looking forward to the full year 2007, we expect revenues to increase on a percentage basis at the carrier market growth rate of mid single digits at a constant Euro/USD exchange rate.

Alcatel's $11.6 billion merger with Lucent was announced in April last year and completed in December.

The group, which has announced 12,500 job cuts, also said its restructuring plans were on track with headcount falling by 1,900 by the end of the first quarter and savings likely to feed through to earnings in later earnings periods.

American Depositary shares of the firm rose 46 cents, or 3.54 percent, to reach $13.46 in morning trading on the New York Stock Exchange.