& cplSiteName &

Alcatel-Lucent Secures €1.6B Lifeline

Ray Le Maistre
12/14/2012
50%
50%

Alcatel-Lucent (NYSE: ALU) has secured credit facilities to the value of €1.615 billion (US$2.11 billion) that are underwritten by Credit Suisse and Goldman Sachs & Co. , providing the vendor with greater financial security and giving its share price a boost.

The cash pool will help fund the vendor's recently announced restructuring plans, dubbed the Performance Program, which involves cutting about 5,500 jobs and focusing on certain markets and product lines. (See Alcatel-Lucent Unveils Revamp, Alcatel-Lucent Sharpens Its Focus, AlcaLu Job Cuts to Hit 5,500 and Pressure's On in Paris.)

CEO Ben Verwaayen expects the Performance Program to cut annual costs by €1.25 billion ($1.64 billion) by the end of 2013, but, in the short term, implementing that program is going to eat up a lot of cash.

Now that the company has access to more immediate financial reserves, investors appear to feel happier that Verwaayen and his team can rebuild the vendor and become operationally profitable again. Alcatel-Lucent's share price was up by 10 percent to €0.94 on the Paris exchange early Friday morning, though that still only gives the company a market capitalization of €2.17 billion ($2.84 billion).

Naturally, the CEO is painting a positive picture following the credit agreements. "We will take advantage of the flexibility provided by this new financing in order to aggressively look at all options to drive long-term sustainable profitability, enhance our strategic positioning and improve our balance sheet," stated Verwaayen in the company's official statement.

The credit facilities are due to be secured by "among other things, the intellectual property portfolio of Alcatel-Lucent," the company noted. The vendor has identified its patent pool as an asset that can generate cash flow and has been attempting to find a way to cash in on its intellectual property during the past year. (See AlcaLu CEO 'Not Selling the Family Silver'.)

In an effort to maximize its patent value potential, Alcatel-Lucent recently created a dedicated Intellectual Property business unit headed up by experienced lawyer Craig Thompson. (See Euronews: AlcaLu Looks to Profit from Patents.)

Alcatel-Lucent remains confident that it can improve its fortunes during the next few years. In announcing the credit facilities, the vendor noted that it had provided its lenders financial forecasts that include a 2015 gross margin target between 35 percent and 37 percent and an adjusted operating margin between 6 percent and 9 percent, significantly better than the 27.9 percent gross margin and adjusted operating loss the vendor managed in the third quarter of this year. (See Margin Misery for Alcatel-Lucent.)

Some financial analysts are skeptical that AlcaLu can achieve its targets. See this Reuters article for commentary that questions the credibility of the vendor's forecasts.

Why this matters
While this is an important step for the company, it's still only one brick in a very large wall that Verwaayen has to build if AlcaLu is to be one of the communications systems sector's survivors and not, as some in the industry have suggested, become "the next Nortel." (See The Decline & Fall of Nortel Networks.)

The CEO needs to quickly determine which assets are worth retaining, which markets it can afford to exit and whether the company's human resources are compatible with the market AlcaLu will be targeting in the coming years.

He also needs to sort out once and for all how the vendor is going to manage its patent portfolio. During the past year the management has been talking up the value of the vendor's intellectual property but has so far failed to identify the optimum strategy for realizing its potential value. Now Verwaayen, CFO Paul Tufano and new recruit Thompson need to put a workable plan into action (and fast) to help ensure the company's viability and reputation.

AlcaLu needed to do all that anyway, but the new credit lines at least give it access to some of the cash needed to put any plans into action.

If Verwaayen acts quickly and decisively, the company could realize some tangible gains within the next year, if the experience of Nokia Networks is anything to go by. NSN secured fresh funding to bankroll the major restructuring program it announced in late 2011 and now appears to be improving its margins and gaining market share in its target sectors. (See NSN Boasts LTE Market Share, NSN Boasts RAN Market Share Growth, APAC Boosts NSN's Q3, Analysts: NSN Focus Makes Sense and NSN Gets $1.36B & New Leader.)

However, NSN's cuts have been deeper than those proposed by AlcaLu, and it's quite possible Verwaayen will either have to announce further cost reduction actions if he is to get anywhere near the financial targets provide to the lenders. (See NSN Could Lose More Than 17,000 Staff and Alcatel-Lucent: Too Little, Too Late?)

— Ray Le Maistre, International Managing Editor, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
From The Founder
The time has come for a telecom app store to save the industry.
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.
LRTV Documentaries
Service Provider Panel: Partnering in the Digital Era

5|22|17   |     |   (0) comments


Coopetition has always been part of telecom, but the ecosphere now includes data centers, vendors, apps developers, cloud service providers and Internet content providers. This BCE 2017 panel explores the new attitudes among network operators as to the value and variety of ...
LRTV Interviews
Site Demo: AT&T's IoT Flow Platform

5|19|17   |   04:25   |   (0) comments


At AT&T's R&D center in Tel Aviv, Israel, project leader Eyal Segev talks about the operator's Flow platform and how it helps to prototype IoT applications.
LRTV Documentaries
Agent of Change: A Q&A With AT&T's John Donovan

5|18|17   |     |   (0) comments


Carol Wilson talks with the man leading AT&T's transformation efforts about the challenge of change.
LRTV Documentaries
BCE Service Provider Panel: The New Business Realities

5|18|17   |     |   (0) comments


For virtualization to happen, the telecom industry first has to grapple with key functional aspects of SDN and NFV that need to be universal, such as onboarding of virtualized network functions and federation of software-defined networks.
LRTV Interviews
BCE Service Provider Keynote: CenturyLink

5|16|17   |   22:32   |   (0) comments


Aamir Hussain leads the Product Development and Technology organization at CenturyLink, which includes the company's information technology function. He is an experienced senior technology executive with more than 25 years of proven success in the implementation of global technology operations, operationalization of complex technology, infrastructures and business ...
LRTV Interviews
CenturyLink CTO on Transformation

5|16|17   |   7:43   |   (0) comments


The 50-year-old telco has already gone through several transformations, including every time it made an acquisition, but its purchase of Level 3 coupled with changes in technology and customer expectations necessitates its biggest transformation yet.
LRTV Documentaries
Light Reading Hall of Fame 2017

5|15|17   |   5:05   |   (1) comment


Find out who made it into Light Reading's Hall of Fame this year.
LRTV Interviews
Site Visit: AT&T's Tel Aviv R&D Center

5|15|17   |   09:58   |   (1) comment


Nir Shalom, general manager and VP of application development at AT&T Israel, talks about the key service developments undertaken at the AT&T R&D facility in Tel Aviv and how the team there has adopted new ways of working.
Telecom Innovators Video Showcase
Act on Your Intelligence With Amdocs aia!

5|15|17   |     |   (0) comments


Amdocs CMO Gary Miles explains how communications service providers can seize the AI opportunity with Amdocs real-time digital intelligence platform.
LRTV Interviews
Logtel CEO: Making Sense of IoT

5|15|17   |   09:48   |   (0) comments


Jacques Bensimon, founder and CEO of Tel Aviv-based training and consultancy Logtel, talks about the need to make IoT more than just a buzzword.
LRTV Huawei Video Resource Center
The Challenges of Mobile Banking Implementation

5|12|17   |     |   (0) comments


Kamal Quadir of bKash Limited explains the challenges and needs of implementing mobile banking in the Bangladesh market.
LRTV Interviews
Tel Aviv: A Hub of Innovation

5|10|17   |   07:58   |   (0) comments


Light Reading's Ray Le Maistre and Dan Allen discuss the technology innovation, food and amazing sights they witnessed during a recent trip to Israel.
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
BSS Is BS, Says KPN Tech Boss
Iain Morris, News Editor, 5/16/2017
AT&T's Donovan: Women Adapt Faster Than Men
Sarah Thomas, Director, Women in Comms, 5/18/2017
Verizon on M&A: Who Needs a Cableco?
Mari Silbey, Senior Editor, Cable/Video, 5/17/2017
Standardization Needs Room for Innovation
Mitch Wagner, Editor, Enterprise Cloud, 5/17/2017
Fright Wigs & Cocktails: BCE 2017 in Pics
Mitch Wagner, Editor, Enterprise Cloud, 5/19/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
TEOCO Founder and CEO Atul Jain talks to Light Reading Founder and CEO Steve Saunders about the challenges around cost control and service monetization in the mobile and IoT sectors.
Animals with Phones
What Brogrammers Look Like to the Rest of Us Click Here
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.