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Russo Should Go

Pat Russo's time has come. It ain't working

October 4, 2007

3 Min Read
Russo Should Go

Whew. Time Flies. This column takes me down memory lane. It's 2007 now. It's been about 10 months since Lucent no longer exists – it's now part of Alcatel-Lucent (NYSE: ALU) – but Chairman and CEO Pat Russo is still in charge of the transcontinental communications colossus. (See Farewell, Lucent.)

So far, the effect on the stock price appears to resemble that of gravity upon an apple.

Tuesday, I was perplexed by Alcatel's press statement. Everything's fine! Don't worry, shareholders! Pat's okay! (See AlcaLu Supports Russo). Grab another café creme! Three horribly missed quarters in a row is not enough, apparently.

In 2001, we famously called for a head at Lucent – of the McGinn variety – and shortly thereafter, it dropped. (See Lucent Supernova.) I've got a funny sense of déja vu. We're here again. What is it about the water in Murray Hill that leads its executives to new realms of shareholder value destruction?

Russo, it's time to go – back to the golf course. (See Pat Russo's Handicap.)

True, this marriage may have been doomed from the start. (See Alcatel Lucent Merger Under Fire.) Tying together a dysfunctional legacy telecom equipment outfit with a giant French bureaucracy never made sense to me. Throw in union issues, Lucent's pension problems, strange French employment laws, and the mystery of what to do with Bell Labs, and the whole thing looked like a boondoggle from the beginning.

But Russo made plenty of promises. In the spring of 2006, she started pounding the table about "synergies" and "cost savings." (See Alcatel, Lucent Seal Deal.)

This is what Russo said in April, 2006, when the merger was conceived: "This presents extraordinary opportunities for our combined company to accelerate its growth.”

Did she mean "decelerate"?

Amazingly, Russo is a serial overpromiser and apologist – both Lucent and Alcatel have been badly missing their numbers for at least the last year – and yet folks somehow still believe her. (See Lucent's Russo: Don't Panic!, Alcatel-Lucent Suffers Stock Shock , Alcatel-Lucent Suffers Q1 Slump, Alcatel-Lucent Slumps on Q2 Loss , and AlcaLu's Russo: We're Under Attack!)

But she blames the market. (See Losercatel?)

The fact is, it's not about the market, it's about execution. The merger has slowed down any momentum that Alcatel may have had in its strong suits, such as, say, the IP edge routing space. And it appears to have inherited Lucent's troubles:

Softswitching is a mess. The margins in wireless have collapsed. (See AlcaLu Breaks Down (in) 2006.) The big "IMS" hasn't really panned out. Popular, talented leaders are leaving the company at a critical time. (See Quigley, D'Amelio out at AlcaLu.) Worst of all, though, one of Lucent's former core markets, optical, has been lost. Ciena Corp. (NYSE: CIEN) is stealing their show in core optical. Look at Ciena and Infinera Corp. (Nasdaq: INFN) – do you see their stock prices going down?

We know the shareholders find it hard to muster enthusiasm for these dismal returns, and revolt is brewing. But the royalty of Murray Hill always knew how to put down a grass-roots rebellion. This skill appears to have translated overseas: Let them eat cake!

Poor Alcatel doesn't know what hit it – "Alors, Bell Labs, we can do something avec ça, non?" They'd never seen the Murray Hill effect in action.

Russo's had plenty of time. Years of broken promises are enough. Things aren't getting better. North America may be headed to recession. The glory days of selling mobile gear in China are over. Ericsson AB (Nasdaq: ERIC) is turning the screws.

The Alcatel-Lucent board owes it to shareholders to move on.

— R. Scott Raynovich, Editorial Director, Light Reading

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