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Alcatel-Lucent Could Exit 25% of Services Deals

Ray Le Maistre

Alcatel-Lucent (NYSE: ALU), which today reported a second-quarter net loss of €254 million (US$309 million), is to review a quarter of its 68 managed services deals as it looks to exit unprofitable contracts as part of its new cost-cutting program and claw the company back into the black. (See Alcatel-Lucent to Cut 5,000 Jobs.)

During today's second-quarter earnings conference call, CFO Paul Tufano noted that 25 percent of AlcaLu's current 68 managed services deals will either be renegotiated, exited or not renewed when the initial contract period expires, and that 15 deals are already under review.

He also noted that "many" of the deals under review are set to be up for renewal between now and the end of 2013. The ones under the greatest scrutiny are those heavily focused on network maintenance.

Currently, AlcaLu's managed services contracts deliver annual revenues of €1 billion (US$1.23 billion) and engage 14,000 of its staff. The CFO noted on the call that annual managed services revenues could fall by as much as €300 million ($369 million) and that any jobs that are transferred or lost as a result of AlcaLu cutting the number of managed services contracts it handles would be additional to the 5,000 job cuts announced today.

AlcaLu isn't the only vendor to realize it needs to be more picky about its services deals: Nokia Networks is also being more selective about its managed services contracts and has already extracted itself from a major deal in Brazil. (See page 2 of the multi-page interview, NSN's Rajeev Suri: Restructuring, Research & Resilience .)

Geographic focus
The vendor currently conducts business in 130 countries but 96 percent of its revenues come from the top 60 markets and those are the markets AlcaLu is going to focus on, while many of the remainder will be exited. "We can't be in the bottom 40 markets that [deliver] 1 percent of the revenues," stated CEO Ben Verwaayen, who noted that the process of quitting countries will be "painful" but necessary.

In an associated move, the company has also outlined plans to use sales channels, rather than deal with customers direct, in some as yet unidentified countries.

— Ray Le Maistre, International Managing Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 5:26:03 PM
re: Alcatel-Lucent Could Exit 25% of Services Deals

I think this is a right decision. Doing business is to earn money. It has nothing to do with being picky. Or in another way, "being picky" is the essence of "business".

The only thing that I am not for is the time, why make this decision when reporting net loss? Why can't announce this decision at another time? In this way, it shows that ALU is more reactive instead of being proactive about its business.


One Ex-ALUer

User Rank: Light Beer
12/5/2012 | 5:25:58 PM
re: Alcatel-Lucent Could Exit 25% of Services Deals

Agree on the timing issue. This is not a new strategy for ALU. They've been indicating that they are going to pursure this strategy going back at least as far as MWC'12.  But, by talking about it now, it does seem like a reaction to the financials instead of the business decision that it is.

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