& cplSiteName &

Alcatel-Lucent: Too Little, Too Late?

Ray Le Maistre
7/27/2012
50%
50%

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   >   >>
digits
50%
50%
digits,
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. 

DCITDave
50%
50%
DCITDave,
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? 

gtchavan
50%
50%
gtchavan,
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.  


 

^Eagle^
50%
50%
^Eagle^,
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.


sailboat


 

Soupafly
50%
50%
Soupafly,
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"

OldVet
50%
50%
OldVet,
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.

Boffin
50%
50%
Boffin,
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?

shygye75
50%
50%
shygye75,
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.

melao2
50%
50%
melao2,
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.


 

Soupafly
50%
50%
Soupafly,
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   >   >>
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
NEXT COURSE
Wednesday, September 14, 1:00PM EDT
What Is Agile?
Kent J. McDonald, Product Owner, Agile Alliance
UPCOMING COURSE SCHEDULE
Friday, September 16, 1:00PM EDT
How to Implement Agile
,
Wednesday, September 21, 1:00PM EDT
What Is DevOps?
Colin Kincaid, CTO, Service Provider, Cisco
Friday, September 23, 1:00PM EDT
How to Implement DevOps
,
in association with:
From The Founder
Light Reading today starts a new voyage as part of a larger Enterprise.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
Between the CEOs
CEO Chat: Intel's Alexis Black Bjorlin

8|17|16   |   06:23   |   (0) comments


Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
Telecom Innovators Video Showcase
Accelerating Telecom Digital Transformation With Nominum DNS

8|1|16   |   12:04   |   (0) comments


Light Reading's Steve Saunders gets an update from Nominum CEO Gary Messiana on how his company is helping carriers on the digital transformation journey.
LRTV Custom TV
Reinventing Operations for a Virtual, Software-Defined World

7|28|16   |   5:23   |   (0) comments


Heavy Reading Senior Analyst Jim Hodges speaks with Accenture's Larry Socher and Matt Anderson about what service providers must do to transform their business to get the benefits of SDN and NFV including: leveraging DevOps, introducing real-time OSS and implementing analytics.
Women in Comms Introduction Videos
Fujitsu Sales Leader Shares Lessons Learned

7|27|16   |   5:12   |   (1) comment


As Fujitsu's only female sales leader, Annie Bogue knows the importance of asking for what you want, being flexible (she's been relocated five times), keeping a meticulous calendar, 'leaning in,' working harder than everyone else around you, being aware and more.
Telecom Innovators Video Showcase
VeEX Test & Measurement Solutions

7|25|16   |   08:57   |   (0) comments


Cyrille Morelle, president and CEO of VeEX Inc., talks test and measurement with Light Reading's Steve Saunders at BCE 2016. This includes innovative products such as VeSion Cloud-Based platform for network monitoring; MTTplus Modular Test platform for Access, Business, Carrier Ethernet, Transport and Core services; and OPX-BOX+ for Fiber Optics.
LRTV Custom TV
VeEX: Live From BCE 2016

7|25|16   |   03:20   |   (0) comments


VeEX's Senior Director of Business Development, Perry Romano, explains how VeEX provides tools to help install, maintain, monitor and manage network infrastructure efficiently and effectively. The portfolio of products on display include the RXT-6000, MTTplus and TX300s.
LRTV Custom TV
Real-Time Telemetry & Analytics for Intelligent SDN Orchestration

7|25|16   |   03:09   |   (0) comments


Packet Design CEO Scott Sherwood discusses how real-time network telemetry and analytics are enabling a new breed of SDN orchestration applications.
From the Founder
The Russo Report: Driving Disruption

7|25|16   |   07:44   |   (2) comments


In the first episode of a four-part series, Light Reading Founder and CEO Steve Saunders and Calix President and CEO Carl Russo drive around town discussing the disruptive mega-changes in the communications industry and where hope lies for service providers to meet the escalating demands of the cloud.
LRTV Custom TV
NetScout: Maximizing Enterprise Cloud for Digital Transformation

7|20|16   |   04:53   |   (0) comments


Light Reading Editor Mitch Wagner talks to NetScout CMO Jim McNiel about maximizing the benefits of enterprise cloud and digital transformation while minimizing potential pitfalls with a proper monitoring and instrumentation strategy.
Women in Comms Introduction Videos
Ciena's VP Offers a Career Crash Course

7|20|16   |   4:14   |   (2) comments


How did Ciena's Vice President of Sales, Angela Finn, carve out her career path? Simple, she tells WiC. She stayed true to her company, customers and principles. She shares her advice for women on how to be authentic and credible, as well as for companies that want to make a real change to their culture and practices.
LRTV Custom TV
NFV in 2016: Part 2 – Climbing the Virtualization Maturity Curve

7|19|16   |   06:56   |   (0) comments


Many of the initial use case implementations are single-vendor and self-contained. The industry is still climbing the virtualization maturity curve, needing further clarity and stability in the NFV infrastructure (NFVi) and greater availability and choice of virtualized network functions (VNFs). Interoperability between NFVis and VNFs from different vendors ...
Telecom Innovators Video Showcase
Versa Networks' Kumar Mehta on SD-WAN Managed Services

7|19|16   |     |   (0) comments


In Silicon Valley, Steve Saunders sits down with Versa's Kumar Mehta for an interview focused on why service providers are building SD-WAN managed services, and how Versa's telco customers are innovating.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 1, 2016, The Westin Times Square, New York, NY
December 6-8, 2016, The Westin Excelsior, Rome
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Five of the Top 10 most targeted countries in Check Point Software Technologies' global Malware & Threat Index for Q1 2016 are in Africa.
Hot Topics
Cisco Developing 'Monica' Digital Assistant
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/22/2016
Cisco Throws 5,500 Overboard on Cruise to Richer Waters
Mitch Wagner, West Coast Bureau Chief, Light Reading, 8/17/2016
VoLTE Can Drive 4G Small Cells Adoption
Ravi Narayanan, Senior Analyst – Cloud & Next Generation Mobile Networks, Heavy Reading, 8/18/2016
Slow Roll Builds for DOCSIS 3.1
Mari Silbey, Senior Editor, Cable/Video, 8/17/2016
Rocket Fiber Lights Up Detroit With Gigabit
Elizabeth Miller Coyne, Managing Editor, 8/22/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Join us for an in-depth interview between Steve Saunders of Light Reading and Alexis Black Bjorlin of Intel as they discuss the release of the company's Silicon Photonics platform, its performance, long-term prospects, customer expectations and much more.
There's no question that, come 2020, 5G technology will turn the world's conception of what mobile networking is on its head. Within the world of 5G development, Dr. ...
Animals with Phones
Live Digital Audio

Bridging the tech skills gap is a major challenge for service providers and suppliers alike today – and the challenge is two-fold when it comes to increasing the number of women in the comms space. Level 3 Communications has made it a priority to overcome both challenges by implementing several unique programs focused on building the right candidates from within – in addition to filling the funnel by supporting STEM and other education programs. During this radio show, you’ll learn about these programs from Mary Beth McGrath, SVP of Global Talent Management at Level 3, and the best ways to bridge your own skills gap so that you are motivated and equipped for change. Plus you’ll have the chance to ask Mary Beth your questions live on the air.