Light Reading

Alcatel-Lucent Sharpens Its Focus

Ray Le Maistre
11/2/2012
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By the end of 2013, Alcatel-Lucent (NYSE: ALU) is going to be a slimmer company, with a smaller head count and fewer managed services engagements.

It could be lighter in other ways too. On Friday's third-quarter earnings call, CEO Ben Verwaayen reiterated that he's looking to cherry-pick the best parts of the communications sector and be a significant player in those segments: The days of end-to-end are over (at least for AlcaLu).

To achieve that, AlcaLu will withdraw from some markets (and adopt a sales channel strategy) and sell some (unspecified) parts of its empire.

Whatever his next move, Verwaayen needs some positive proof points soon. The vendor's margins are on the slide and investors don't appear to care much for explanations and reasoning: AlcaLu's stock is down 9.5 percent to $1.00. (See Margin Misery for Alcatel-Lucent.)

Here's a snapshot of the some of the key points Verwaayen and CFO Paul Tufano made during their presentations and in their answers to questions from the analyst community.

  • Product lines that can't deliver decent margins will be "de-emphasized," Tufano noted. The company is examining a number of possible divestments, and not just of low-margin units, but Verwaayen wouldn't comment on how much smaller AlcaLu might be following any asset sales.

  • The company's efforts to generate revenues from its patent portfolio have so far failed to deliver. The arrangement with patent broker RPX has been renegotiated, and AlcaLu will now also engage with other similar companies in an effort to strike good deals. To accelerate patent licensing developments, Verwaayen will soon announce a new senior appointment who will be focused on this area. The CEO also noted that he has turned down a couple of patent licensing offers because they weren't good enough.

  • Exiting certain managed services deals, as previously announced, could hit the company's annual revenues by about €400 million (US$513 million) eventually, but margins would improve. The company is on course to "address" at least five managed services contracts that aren't delivering decent returns by the end of this year. (See Alcatel-Lucent Could Exit 25% of Services Deals.)

  • The company is reviewing its operations in 45 countries to see if it makes sense to withdraw and use sales partners instead.

  • In wireless/mobile, AlcaLu will focus on certain markets, particularly the U.S. and China. "We will focus on selective markets [and] disengage where we can't make a difference." Verwaayen cited the LTE TDD deal with China Mobile Ltd. (NYSE: CHL) and the lightRadio deal with Sprint Corp. (NYSE: S) as very significant. He also noted that, for mobile carriers, it wasn't just about the base station technology, but also the supporting network and software needed to run 4G networks. (See China Mobile Picks Alcatel-Lucent for LTE TDD and Sprint's First to Deploy Alcatel-Lucent's lightRadio .)

  • AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) each generated more than 10 percent of the vendor's revenues in the third quarter. Total revenues were €3.6 billion (US$4.64 billion).

  • The wireline business has had a new lease on life thanks to growing investments in fiber-based fixed broadband, whether fiber to the curb or fiber to the home/building. Verwaayen says the company's vectoring capabilities (boosting VDSL2 bandwidth using noise cancellation techniques) have been a hit in Europe, and that's looking like it's being replicated elsewhere. "We are the only one in vectoring with anything deployed. I can think of only one order we missed in this domain in the past three months." And in fiber access, "we are one of just two-and-a-half [major players] and we are sharing the gold medal," noted the CEO. (See TDC Trials Vectoring With AlcaLu, for example.)

  • The IP division is still recording tremendous success -- a 30.3 percent year-on-year increase in sales to €490 million ($632 million) in the third quarter -- and the new 7950 XRS core router has landed six contracts, only one of which has been announced. (See Alcatel-Lucent, Juniper Get Core-Router Upgrades and Verizon Builds an MPLS Metro With AlcaLu.) The company previously announced the broad strokes of its new organizational structure, which will come into effect on Jan. 1, 2013. (See Alcatel-Lucent Unveils Revamp.)

    But here's a bit more detail about the new setup.

    • The Networks and Platforms Group (networking, software and services) will comprise four business divisions: Core Networks (Optics and IP); Fixed Networks; Wireless; and Platforms
    • The Focused Businesses Group will comprise Enterprise, Submarine and the Strategic Industries division
    • Managed Services will be a standalone operation
    • The Global Sales and Marketing organization will "oversee and manage all customer-facing commercial relationships"
    • The Global Customer Delivery team will focus on creating a "unified and agile delivery capability"

    — Ray Le Maistre, International Managing Editor, Light Reading

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    gtchavan
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    gtchavan,
    User Rank: Light Beer
    12/5/2012 | 5:18:09 PM
    re: Alcatel-Lucent Sharpens Its Focus


    Here is what else you ought to do.  In your next opulent sales meeting for all of my-#&*%_don't-stink-sallary+comission sales guys, let them know that nothing goes out the door without a minimum margin and give them a list of dogs that are willing to sell below cost and ask them to hand out the list to the customers if thier target price is below cost. RESPECT THE BRAND.

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