New boss begins Alcatel make-over

Alcatel-Lucent unable to post regular profits and generate cash since its formation in a merger in 2006

PUBLISHED : Thursday, 20 June, 2013, 8:56am
UPDATED : Thursday, 20 June, 2013, 8:56am


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Telecom equipment maker Alcatel-Lucent plans to focus on networking products and high-speed broadband and will slim down with a billion euros in cost cuts by 2015 in a bid to reverse years of losses.

The plan unveiled on Wednesday by Michel Combes, the company’s new chief executive, will also include more than a billion euros of unspecified asset sales and 2 billion euros in debt re-financing by 2015, followed by a further 2 billion in debt reduction that could include issuing new shares.

Alcatel shares jumped more than 7 per cent to a new year high in early trade.

“This plan goes in the right direction, but I believe some elements of it are not aggressive enough,” said Pierre Ferragu, analyst at Bernstein Research, who thought the cost savings could have gone further in a tough competitive landscape.

Alcatel-Lucent, which competes with Sweden’s Ericsson , China’s Huawei, and Nokia Siemens Networks , has been unable to post regular profits and generate cash since it was formed in a merger in 2006.

Combes, who used to run telecom giant Vodafone’s European businesses, is the third chief executive to try to right Alcatel.

Combes explained that the group would reposition itself as a specialist player by focusing research and marketing efforts on its high-growth Internet Protocol (IP) networking products and very high-speed broadband in fixed and mobile. These priority areas will get 85 per cent of the company’s R&D budget, while older, legacy products would be “managed for cash”.

The aim is for sales of IP products, which help direct data traffic inside telecom networks via specialised routers, to grow by roughly 15 per cent to more than 7 billion euros by 2015, or about half of group sales.

Combes also wants to improve the operating margins on IP networking from their current 2.4 per cent to at least 12.5 per cent and make the firm free-cashflow positive by 2015.

“To deliver on this strategic plan, we need to regain competitiveness - that means having the right products, quality of execution, and lowering our costs to be similar to peers,” Combes said on a conference call.

Alexander Peterc of Exane BNP Paribas was hoping for more emphasis on what would drive the business forward.

“Alcatel-Lucent’s plan includes more of the same on restructuring, and not enough of the new focus,” he said.

Alcatel-Lucent shares have risen 40 per cent this year on hopes that Combes can turn around the Paris-based group.

But its market capitalisation has shrivelled to 3.2 billion euros (HK$33.2 billion), far from its pre-merger levels of roughly US$36 billion (HK$279.3 billion).