Light Reading
A €1.615B credit facility gives vendor some breathing room as it attempts a turnaround – but is it enough?

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
Educational Resources
sponsor supplied content
Educational Resources Archive
Flash Poll
LRTV Huawei Video Resource Center
The Inaugural Optical Innovation Forum in Nice

9|2|14   |     |   (0) comments


More than 170 attendees from network operators, service providers, analyst firms, and component companies from around the world convened in Nice in June for the inaugural Optical Innovation Forum, co-produced by Huawei and Light Reading.
Wagner’s Ring
Data Centers Drive Telcos Into the Future

8|28|14   |   2:20   |   (2) comments


Data centers are at the heart of key trends driving telecom -- network virtualization, the drive for increased agility, and the need to compete with OTT providers.
LRTV Custom TV
Why SPs Should Consider Cisco's EPN

8|27|14   |   5:40   |   (0) comments


Sultan Dawood from Cisco discusses Cisco's EPN, which enables SPs to build agile and programmable networks delivering new network virtualized services using Cisco's Evolved Services Platform (ESP).
LRTV Huawei Video Resource Center
Huawei’s Showcase @ Big Telecom Event 2014

8|26|14   |   2.56   |   (0) comments


SoftCOM is Huawei's framework for telecom business and network transformation. Haofei Liu, Solution Marketing Manager, Carrier Business Group, Huawei, showcases Huawei's SoftCOM architecture in this video.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of Integrated Solutions on SoftCOM & NFV Monetization

8|26|14   |   4.43   |   (0) comments


Libin Dai, Director of Integrated Solutions, Carrier Business Group, discusses Huawei's SoftCOM and NFV monetization. Huawei believes that NFV monetization should be service-driven rather than network-driven, and that operators should have network transformation, service transformation and a compatible and collaborative ecosystem in place in order to deploy NFV.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of US NFV Lab on CloudEdge & the Future of NFV

8|26|14   |   4.06   |   (0) comments


Sean Chen, Director of US NFV Lab at Huawei, discusses Huawei's new approach to NFV in open collaboration. Huawei believes that through Proof of Concept tests, it could help operators learn and communicate with the industry more effectively. Sean believes that successful implementation of NFV should have its values reaching to end users and discusses how Huawei's ...
LRTV Huawei Video Resource Center
Huawei's Highlights @ Big Telecom Event 2014

8|26|14   |   3.34   |   (0) comments


At the Big Telecom Event in Chicago Huawei showcases its high-level strategy, the SoftCOM architecture, which helps operators reduce the cost of ownership of their network infrastructure and generate additional revenue in the ICT service environment. Huawei showcases over 30 pilot programs from across the globe, focusing on the industry-leading commercial ...
LRTV Custom TV
VeEX – Live from the Show

8|21|14   |   5:58   |   (0) comments


An overview of VeEX Test and Measurement solutions including TX300S multi-service test set with VeExpress cloud-based management system, UX400 universal modular platform supporting 100G testing, and the redesigned RXT modular platform.
LRTV Custom TV
Transitioning CE 2.0 Networks Into the SDN & NFV Era With Telco Systems

8|19|14   |   5:19   |   (0) comments


Telco Systems' Ariel Efrati (CEO) and Moshe Shimon (VP of Product Management) discuss virtualization and how the company's new Open Metro Edge solution utilizes the SDN and NFV concepts to accelerate and orchestrate service delivery through its innovative product portfolio and software applications.
LRTV Custom TV
NFV Myths: Is NFV Still Several Years Away?

8|11|14   |   1:13   |   (0) comments


Some say that NFV (network functions virtualization) is still several years away from being implemented on mobile operator networks. This isn't the case. Operators can get started on their paths to NFV now, as this short video from Skyfire shows.
LRTV Custom TV
A New Security Paradigm in SDN/NFV

7|28|14   |   02:54   |   (0) comments


Paul Shaneck, Global Director Network Solutions for Symantec, discusses the evolving virtualized network, explaining how Symantec is leading the security discussion as it relates to SDN and NFV, and helping to ensure the network is protected and compliant.
LRTV Documentaries
Sprint's Network Evolution

7|24|14   |   14:59   |   (0) comments


Sprint's Jay Bluhm gives a keynote speech at the Big Telecom Event (BTE) about Sprint's network and services evolution strategy, including Spark.
Upcoming Live Events!!
September 16, 2014, Santa Clara, CA
September 16, 2014, Santa Clara, CA
September 23, 2014, Denver, CO
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
A survey conducted by Vasona Networks suggests that 72% of mobile users expect good performance all the time, and they'll blame the network operator when it's not up to par.
Today's Cartoon
Hot Topics
Nokia's Maps Land on Samsung Devices
Sarah Reedy, Senior Editor, 8/29/2014
Now Google Planning Drones-to-Go
Dan Jones, Mobile Editor, 8/29/2014
Music to My Mobile
Sarah Reedy, Senior Editor, 8/28/2014
Be Open to the Freedom of Openness
Kelly Herrell, 8/29/2014
Netflix to FCC: Kill Comcast-TWC Deal
Alan Breznick, Cable/Video Practice Leader, 8/28/2014
Like Us on Facebook
Twitter Feed