Well, the rumors were half-right. Alcatel-Lucent on Friday announced a strategic realignment going forward, which includes pulling back on WiMAX and some GSM-based initiatives, and, of course, layoffs. The vendor did not announce plans to exit the mobile business entirely however, which was a move some analysts had expected it to make.
In fact, ALU reiterated its staunch support for the 4G wireless broadband standard known as LTE, which has gotten more attention lately thanks to a string of announcements, including Verizon Wireless’ revelation that it is accelerating its plans to deploy the technology by moving its target launch window up to late 2009.
On the job- and cost-cutting front, the equipment maker said it will slim down the number of managers it has by 1,000 or so, and get rid of 5,000 contractors — that’s out of a workforce of 70,0000 globally, and will be added to the 16,500 positions the company already has said it would eliminate next year. It will also make reductions in real estate and support functions. In all, the vendor said it will save about $1 billion through the measures.
If all goes well, it expects to reach a break-even point of $1.33 billion in 2009, with a goal to be profitable in 2010. Next year the landscape will be impacted by the constricting economy, ALU warned, with the telecom equipment market overall declining by between 8 percent and 12 percent at constant exchange rates.
Cuts are one side of the equation; capturing opportunities going forward is the other. To that end, the company also laid out a realignment plan that reorganizes its products by three markets: service providers, enterprises and verticals. And it identified four key areas of investment: IP, optical, and mobile and fixed broadband and applications enablement.
WiMAX will be offloaded, despite ALU having more than 30 commercial contracts in place, while the company will continue to invest heavily in LTE and in 3G CDMA, a market in which Alcatel-Lucent has a 45 percent market-leading share.
“The company continues to innovate in CDMA/EV-DO to keep operators competitive during the evolution to 4G,” a company spokesperson told xchange.
Tapping the IP Evolution
The gear maker also will redouble its efforts in IP and fixed broadband for businesses and service providers alike; regarding the former, it recently announced several enterprise telephony enhancements around unified communications and enterprise switching, for instance. This dovetails with market trends; while the overall enterprise telephony market is not growing, IP is a bright spot. “Like the pure IP PBX segment, which is benefiting from new product launches, and IP softphones, of which we've seen a tremendous uptake in recent quarters, and which should weather the economic storm fairly well, with continued annual growth expected," said Matthias Machowinski, directing analyst for enterprise voice and data at Infonetics Research.
In a call with reporters, CEO Ben Verwaayen also acknowledged the ongoing march toward open development platforms for service providers, and the impact of Web 2.0 on the traditional telecom landscape, and said ALU plans to adjust accordingly. Open networks, he noted, are the future, and offering operators a way to allow customers to access the Web from any device and across any access network is a main strategic principle for the vendor.
“We have a strategy here that gives us momentum in the market,” Verwaayen said. “We want to stimulate a sustainable business model for the industry that will fuel innovation and the capital investment required to expand the overall Web experience to more people and businesses.”
Work to Do
Alcatel-Lucent, which has lost 66 percent of its stock value this year, has work to do to reverse what has been a trend of ongoing bad news. Last year also saw ALU revising its financials downward after all, losing top executives and reorganizing its business units. It has posted seven straight quarters of losses, including a net loss of $51 million in the third quarter. It’s lost a CEO and two CFOs this year and reportedly suffers from ongoing internal clashes. And it’s been feeling the impact of a botched integration after the $11 billion merger that created the company closed early in 2007, as it has struggled to realize the savings it said would be gained by shedding duplicate products.
And it doesn’t help the telecom vendor space is feeling the carrier capex prioritization pain across the board (poor Nortel Networks).
Verwaayen said the vendor’s plans to make ALU leaner and tighter will result in a more nimble company. But investors were not so sure, fleeing from the stock on the news. In Paris trading, shares sank to 9.7 percent to $2.22, making the stock the biggest percentage loser in the CAC 40 index. Analysts said in press reports on Friday that they were expecting spinoff announcements (like leaving mobile behind) to demonstrate ALU’s commitment to making the big changes necessary to right the ship, and instead got a lukewarm vision for simple streamlining.
Wireless has been targeted as a problem area for ALU because of CDMA slowdowns, especially in North America. It’s also feeling the heat from new-to-the-States Asian competitors like Huawei Technologies, which just won contracts for Canadian carriers TELUS and Bell Canada.
