Light Reading

Alcatel-Lucent: Too Little, Too Late?

Ray Le Maistre

Thursday July 26 2012 was a significant day for Alcatel-Lucent (NYSE: ALU). The company admitted that its efforts to become a profitable, stable company weren't working and that it needed to shrink its workforce by about 6 percent, get out of non-profitable managed services deals and find a new way to persuade the market, and itself, that the future will be brighter.

But is it going far enough? Clearly some think not.

Investors aren't convinced by the plans, as the vendor's share price is down, if only by a fraction of a cent, to €0.82 on the Paris exchange, where it has lost nearly 36 percent of its value in the past month alone.

The story is the same on the other side of the Atlantic, where the stock is down 3 cents to $1.00, giving Alcatel-Lucent a market value of US$2.34 billion.

Long-time telecom sector financial analyst Mike Genovese, a managing director at MKM Partners , believes the "significant job cuts and slight restructuring are probably not enough with €2.7 billion [$3.33 billion] in debt due from 2014-2017."

IP Equipment Spinoff?
So what else could AlcaLu do? In a research note, Genovese states that a spin-out of the IP (routers) division "could create value." Taking the market value of rival IP equipment vendor Juniper Networks Inc. (NYSE: JNPR) as a guide, Genovese notes that the IP equipment business, which is generating about €2 billion ($2.46 billion) in annual revenues, could be worth more by itself than the whole of its parent currently.

That assessment would place a zero, or even negative, value on the remainder of AlcaLu's operations at current market capitalization values.

In fact, Mark Sue at RBC Capital Markets has, in a research note issued Friday, cut the target price of AlcaLu's stock to $0.00 (honest!), stating that "we believe the company may see revenues contract, experience profits reductions and continue to burn cash from operations … the IP segment remains the only strong card in the Alcatel-Lucent portfolio," adds Sue.

As Light Reading noted Thursday, the IP division is the company's only real shining star currently. In addition, it has a highly respected leader in Basil Alwan and highly respected products. (See IP Remains Alcatel-Lucent's Star Performer.)

But what impact would a spin-out of that line of business have on the parent? It might end up being the company's only option, but what would that mean for the rest of the company? A slow and costly demise, very possibly.

Of course, AlcaLu's CEO Ben Verwaayen doesn't see things the same way. He is bullish about the company's ongoing prospects in China, where the current contract award hiatus is expected (by Verwaayen, at least) to be followed by a new wave of capital spending that will benefit AlcaLu. LTE, 100Gbit/s optical and cloud services management are also regarded as significant growth areas by the company's management.

What will be worrying for many, though, is that AlcaLu's current predicament looks similar, though not identical, to that of Nortel. If Verwaayen and his team can turn the AlcaLu ship around and prove analysts such as Mark Sue wrong, then it'll become a textbook case of a remarkable transformation.

If the management team doesn't achieve its goals, though, it might just become a textbook example of what can go wrong for large joint-venture companies in a fast-moving technology vertical.

— Ray Le Maistre, International Managing Editor, Light Reading

(14)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Page 1 / 2   >   >>
User Rank: Light Beer
12/5/2012 | 5:25:58 PM
re: Alcatel-Lucent: Too Little, Too Late?

Is spinning out the IP division ALU's only hope?

And, if it did that, would it consign the rest of the company to the financial knacker's yard? 

I wonder how many highly-paid financial advisers are in Paris right now... and whether any of them are earning their fees?

I tyhink we might see the vultures starting to circle. 

User Rank: Light Beer
12/5/2012 | 5:25:57 PM
re: Alcatel-Lucent: Too Little, Too Late?

After spinning out the IP division, who's in favor of seeing ALU sell Bell Labs back to AT&T? Or Google? 

User Rank: Light Beer
12/5/2012 | 5:25:51 PM
re: Alcatel-Lucent: Too Little, Too Late?

Why raising prices is never a consideration in reorganization plans?  The only hope they have is to stop wrapping $100 bills to every box they sell.  They must raise prices to be profitable and it is a matter of survival.  All prices in all contracts have to be breached.   They might PO a few customers in the short run but what can they do, sue them and shut they down completely and get no hardware?  Besides, the Telco's need a minimum of 18 months to qualify a new source and at least 9 months on top of that to RFQ and short list all of the gazillion suppliers who bid.  Frankly if others find out ALU has raised prices, they won't be giving such low ball prices and the industry will come back to a health.  


User Rank: Light Beer
12/5/2012 | 5:25:49 PM
re: Alcatel-Lucent: Too Little, Too Late?

I wonder what the price for Bell Labs would be if they decided to sell it off separately.

of course a lot would depend on what patent portfolio would come with the labs.  considering the long deep patent pool with IP around nearly every part of modern communications, those patents from Bell Labs might be worth more than the entire company.  

Alternatively, they could sell access to patents and IP in chunks.  I'll bet I know some folks who would gladly buy several chunks of IP from the labs.



User Rank: Light Sabre
12/5/2012 | 5:25:45 PM
re: Alcatel-Lucent: Too Little, Too Late?

I recall suggesting just such a direction a few weeks ago, in a discussion with brookeseven.

Realistically, the IP division is the only product set that has strategic significance and tangible market credibility. When a carrier purchases IP platforms, its more than a box sale and that plays to some of ALU's strength.

Global competitors have copied & eaten ALU alive in optical, wireless & fixed networking. Those sectors are now viewed as "box sales" and commoditised. And thats perception is the single biggest reason why ALU are dead in the water.

You can add Nokia-Siemens alongside them, in the water.

The only other play, would be if a HP or Cisco were to make a move. If you could combine their core products into a suite of solutions that have real commercial value that could be their ace in the hole.

What those solutions would be, how they would sell them, etc, Is not something I would want to publish publicly, at this juncture. I wouldnt want to enable competitor counter-tactical using my posts and IPR.

Tbh, I doubt that HP. IBM or Cisco would make a move right now. It would be better to wait for Chapter 11, cherry pick the corpse without pension fund commitments, huge layoff payouts and other financial penalties that come from purchasing a "going concern"

User Rank: Light Beer
12/5/2012 | 5:25:38 PM
re: Alcatel-Lucent: Too Little, Too Late?

The CEO and CFO have been asleep at the wheel from the beginning.  As late as mid-May of this year, the CFO was on a road show to the former-Lucent HQ of Murray Hill, NJ and told everyone there that ALU was on target for a good 2Q.  This tells me that there are no live-look controlling/monitoring systems of the financials.  They have no idea on the financial performance of any project until the actual costs hit the system at the end of a project and they bounce those numbers against the revenue.  Their Supply Chain organization is bloated and inefficient.  The Sales force compensation is based solely on expected revenue instead of a mix between revenue and projected financial performance.  With that in mind, the entire sales force is no better than a herd of used car salesmen.

The so-called "merger" was nothing more than an old man's attempt at a legacy after his retirement.  Lucent brought zero value to the table.  It would have been better to cherry pick the good parts (few of them) and leave the rest.  One of the money pits that Alcatel took on was the significant represented workforce (i.e. union) that Lucent brought along with them.  Add to that the adoption, in toto, of ALL of the business processes and systems used by a failing company (Lucent) and the demise of a world-leading company is an ultimate certainty.

Each region in the company and each group within that region has adopted a defensive silo mentality since the beginning and it will only get worse until ALU folds up.  Most uf us give it til about 3 months before the debt payment comes due in 2014.

User Rank: Light Beer
12/5/2012 | 5:25:38 PM
re: Alcatel-Lucent: Too Little, Too Late?

One of the many issues that took Nortel down were the global pension liabilities. Does anyone know how much of an issue this is for ALU?

User Rank: Light Sabre
12/5/2012 | 5:25:37 PM
re: Alcatel-Lucent: Too Little, Too Late?

Ray -- Doesn't the abandonment of managed services represent a huge long-term decision for ALU? I understand the short-term issues re profitability, but the managed services initiative was intended as part of the transition from hardware vendor to a more full-service supplier.

User Rank: Light Sabre
12/5/2012 | 5:25:34 PM
re: Alcatel-Lucent: Too Little, Too Late?

mendyk, your post raises a question to me. Who is making a profit on Managed Services? 

Always I read, and read that service is the future, but managed services? Is that the future? As I understand managed services should be a low margin service. 

At least in here (Brazil), most of the companies are keeping its managed services operations to have foothold in the telecom operators. The profitability is just terrible. Additionally, for the consumer, the perception is that the service quality has degraded a lot on the last years, and I peronally think that the operators are not handling their operations completelly, and that caused the problem. Outsourcing is a bitch.


Maybe this is a limited point of view from the local market here in Brazil. Please correct me if I am wrong.


User Rank: Light Sabre
12/5/2012 | 5:25:29 PM
re: Alcatel-Lucent: Too Little, Too Late?
Yep. In many ways Ericsson is rapidly scaling & expanding its Managed Services business.

It comes down to the same challenge, which persists across the industry.

Namely; What is your USP? If you deliver only "me-too" products & services then you deserve to go out of business.

Its a differentiate or die, world and you have to consistently keep adding value through people & processes.
Page 1 / 2   >   >>
Educational Resources
sponsor supplied content
Educational Resources Archive
From The Founder
The comms industry is rallying to the cause of open, independent interoperability testing.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
Telecom Innovators Video Showcase
Tail-f, Cisco & What the Future Holds

10|9|15   |   8:17   |   (0) comments

Steve Saunders meets with Tail-f's Director of Technology, Carl Moberg, in Stockholm to discuss becoming part of Cisco, ETSI MANO, virtualization and the need to combine science and business in order to create opportunities for service providers.
LRTV Interviews
Broadband Forum Embraces SDN & NFV

10|9|15   |   02:42   |   (0) comments

At Gigabit Europe 2015, Robin Mersh and Kevin Foster from the Broadband Forum explain how the industry body is adapting to meet the SDN, NFV and cloud needs of the access network sector.
LRTV Interviews
Top Tips for FTTH Operators

10|8|15   |   02:26   |   (0) comments

At Gigabit Europe 2015, Ventura Team co-founder Richard Jones talks about some of the key business case considerations for FTTH network operators.
LRTV Interviews
M-net Calls for FTTx Unity

10|8|15   |   03:45   |   (0) comments

At the Gigabit Europe event, Jörn Schoof from M-net, the Munich city network operator, calls for industry collaboration on fiber broadband access rollouts.
LRTV Documentaries
The Business Case Challenge for NFV

10|7|15   |   03:47   |   (0) comments

Virtual CPE is one of the early success stories for network functions virtualization, as service providers are finding flexible, programmable CPE solves a lot of logistics problems and reduces their cost. But even here, Masergy Communications faced a business case challenge, says CTO Tim Naramore.
LRTV Interviews
JT Offers Some Gigabit Lessons

10|7|15   |   4:08   |   (1) comment

Barna Kutvolgyi, managing director, Global Consumer, at JT, the incumbent operator on the island of Jersey, talks about how other service providers can learn from his company's gigabit broadband rollout experiences.
LRTV Interviews
AT&T's Chiosi on the Potential of Open Source

10|6|15   |   06:27   |   (0) comments

AT&T Distinguished Network Architect Margaret T. Chiosi talks to Light Reading's Carol Wilson about the potential for open source technology to liberate communications service providers.
LRTV Interviews
Network Security in a Gigabit World

10|6|15   |   05:52   |   (0) comments

Masergy's James Harrison talks about some of the network security and data center issues network operators need to consider as they expand their broadband services portfolios.
LRTV Documentaries
Telefónica: In Search of Virtual Simplicity

10|5|15   |   07:30   |   (0) comments

Francisco-Javier Ramon Salguero, head of Telefónica's NFV initiative, admits virtualization initially means greater complexity, but with the right abstraction layer, it is possible to create a services-driven network architecture. He explains how Telefónica's current trials and initiatives are aimed at doing that, and what his company and other carriers need to ...
LRTV Interviews
Gigabit Europe Takeaways

10|5|15   |   03:47   |   (0) comments

Participants from the inaugural Gigabit Europe event in Munich share their key takeaways from the conference.
Women in Comms Introduction Videos
Intel Urges Women to Take Advantage of Their Seat at the Table

10|5|15   |   4:27   |   (1) comment

Have inclusive and constructive conversations, attach a bigger meaning to your work and get involved in the cause, Intel's Monique Hayward advises women in comms.
LRTV Interviews
BT Updates on Plans

10|2|15   |   03:16   |   (2) comments

Peter Bell, CIO at Openreach, the access network division at UK incumbent BT, provides an update on the operator's trials and how Openreach is planning to deploy the broadband technology in its street cabinets.
Upcoming Live Events
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
November 17, 2015, Santa Clara, California
December 1, 2015, The Westin Times Square, New York City
December 2, 2015, The Westin Times Square, New York City
All Upcoming Live Events
Network appliances have a strong value proposition in today's networks and will continue to do so in the NFV and SDN-enabled networks of tomorrow.
Hot Topics
M&A Speculation Swirls Around Juniper
Ray Le Maistre, Editor-in-chief, 10/6/2015
Cisco's Chambers Rules Out Political Bid
Mitch Wagner, West Coast Bureau Chief, Light Reading, 10/6/2015
Cord Cutting? 'Fraid so.
Brett Sappington, 10/7/2015
Infinera Fleshes Out Its Metro 100G Story
Ray Le Maistre, Editor-in-chief, 10/7/2015
Cisco Makes 'Martian' Connection
Mitch Wagner, West Coast Bureau Chief, Light Reading, 10/9/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With so many new and exciting communications technologies now under development, it's easy to get caught up in the industry's escalating hype cycle. That's why the ...
Last week saw a big day in the 15-year history of Light Reading when Editor-in-Chief Ray Le Maistre and I were invited to interview the Deputy Chairman and Rotating ...
Cats with Phones
"What?! I'm on with Finisar about their stock price tanking" Click Here