Business Transformation

AlcaLu's Combes: 'We Are Now Back on Track'

MOUNTAIN VIEW, Calif. -- Despite its continued losses, Alcatel-Lucent CEO Michel Combes says the company has come a long way in getting its financial house in order and is focused on innovating, partnering and finding new customers.

Combes took the big chair at Alcatel-Lucent (NYSE: ALU) in April 2013 and has spent much of the time since then on financial restructuring. "After 18 months on this journey, we are now back on track. We have demonstrated renewed profitability and a clean asset portfolio," Combes said. "The journey isn't yet finished, but is on track to reach its target."

It's premature for Combes to take a victory lap. But the company is much improved.

Alcatel-Lucent reported a net loss of €290 million (US$389 million) for the second quarter in July, but said comparable sales grew about 5%, offset by exchange rate variations, exclusion of the managed services business (where AlcaLu has been abandoning multiple contracts) and other factors. Second-quarter revenues totaled €3.28 billion ($4.39 billion), down about 4.7% from a year ago. (See Alcatel-Lucent Preps Submarine IPO, Expects Core Growth.)

What's ahead?
Combes spoke at a briefing day for French journalists (and about two of us Américains) on Monday. He also spoke with Light Reading about renewed growth in May. (See Alcatel-Lucent CEO: We Can Go It Alone.)

What's ahead for Alcatel-Lucent? The company is mainly supported by service provider customers, which will continue, but the company will also have to find new growth segments, Combes said. It's finding those in cable providers, big enterprises, web-scale players, government and the cloud. Alcatel-Lucent will focus over the next 18 months on extending its scope to these new segments, Combes said.

Previously product-driven, Alcatel-Lucent will need to transition to services as well as products.

Partners will be key to growth. "Innovation can only be delivered in an open ecosystem with partners," Combes said. Alcatel-Lucent already teams with Qualcomm Inc. (Nasdaq: QCOM) on small cells -- which it sees as strategic to growing network capacity, not just a means of extending cell coverage indoors -- Intel Corp. (Nasdaq: INTC) on network optimization, and Thales Security on security. (See Small Cells Key to Network Capacity Expansion – Alcatel-Lucent CTO and AlcaLu, Qualcomm Prep Multimode Small Cells.)

Alcatel-Lucent is encouraging customers to select best-of-breed technology on networks, a principle that's alien to the networking industry historically. The vendor is partnering with Arista Networks Inc. and Cisco Systems Inc. (Nasdaq: CSCO) on NFV, and is also partnering with Cumulus, HP Inc. (NYSE: HPQ), and Dell Technologies (Nasdaq: DELL). "In the past, you wouldn't see network guys like us integrate with switch guys like that. But we have to," said Basil Alwan, Alcatel-Lucent president of IP routing and transport.

Criticizing the competition
Sunil Khandekar, founder and CEO of AlcaLu's Nuage Networks business, contrasted his company's approach with those of VMware Inc. (NYSE: VMW) and Cisco Systems Inc. (Nasdaq: CSCO). VMware controls its SDN ecosystem, while Cisco says that if customers don't use its hardware, they can't achieve the benefits of SDN. Nuage, on the other hand, will work with any cloud management system, data center networking infrastructure, server, hypervisor or container, Khandekar said. (See Lifting the Cloud Over SDN, Nuage Claims SDN Progress and Numergy Taps Nuage SDN for Cloud.)

Alcatel-Lucent claims it can achieve 50% reduction in opex, 10-fold improvement in turn-up response time and 40% increase in asset utilization and flexibility, Khandekar said.

Networks need to be flexible enough to run applications where they can deliver maximum customer convenience, and to permit carriers to innovate new services easily, Alwan said.

Application deployment has been driven by network economy, with apps running centrally in the mainframe era when compute was expensive, and locally when bandwidth was insufficient. Now, apps are moving toward distributed deployment on the cloud.

But applications need to run where it's best for the customer, Alwan added.

The apps must flow
"Free flow means applications aren't based on economics, just where the application should be for customer convenience," Alwan said. For example, shared storage should be in the cloud, but heavy information manipulation should be done locally.

Alwan noted that he discussed the "free flow" vision at Light Reading's Big Telecom Event in June. (See AlcaLu: Going With the Flow.)

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In the conventional networking model, applications ran on a single server and stayed there, Alwan said. Now, using virtual machines, they're shut down and brought up on the fly.

Free flow requires highly reliable networks and low cost per bit -- and that's where Alcatel-Lucent comes in, Alwan said. "Alcatel-Lucent's core technology is pushing the limits of bandwidth on copper, fiber, barbed wire -- you name it."

With these tools, "the idea of innovation is more attractive to service providers," Alwan said. Previously, innovation was too expensive. "It was huge just to try something." SDN and NFV allow greater agility. "It's much easier to innovate this way than in the old days when you had to deploy tons of capital and tons of OSS," he said.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

jayja 9/12/2014 | 3:12:18 PM
renewed profitability? I suupose given the amount of money down the drain since this merger, losing $389M counts as "renewed profitability".

The head of the router business thinks it is a breakthrough to talk to the switch guys?  Aren't there switch guys in his own company? Maybe that's part of the problem.  Maybe it is the problem.
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