The French telecommunications equipment maker posted a net loss for the third quarter of 558m euros (£346m), compared with a net profit of 297m euros in the same period last year.
Sales in the third quarter came in at 5.6bn euros, down 18% from last year's figure of 6.8bn euros.
Like its rivals Ericsson and Lucent, Alcatel has seen sales drop because telecoms carriers have postponed or scrapped network upgrades and expansions. Sales in the fixed telecoms area were hardest hit with a year-on-year drop of more than 50%.
Sales of broadband technologies, mainly Asymmetric Digital Subscriber Line (ADSL), were down in the US. Sales of Global System for Mobile Communications (GSM) mobile handsets declined worldwide, with 1.9 million units sold in the quarter. However, sales in the optics segment, which includes optical networking, were slightly up.
The geographical breakdown of overall sales at Alcatel was 50.6 % in Europe, 17.6% in the US, 15.5% in Asia and 16.3% in the rest of the world.
In preparation for a further drop in sales and to enable the company to break even with quarterly sales of under 5bn euros, Alcatel said it would cut costs by 20% and reduce its European headcount by 10,000. This is in addition to the 23,000 workers worldwide that have already been laid off.
To start 2002 with a clean sheet, Alcatel said it planned to take a restructuring charge of 1.2bn euros in the fourth quarter, together with possible charges for inventory write-offs.