AlcaLu Makes Product Cuts

Alcatel-Lucent (NYSE: ALU) has started trimming its extensive product portfolio to give customers a better idea of what technology they can expect from the giant vendor in the future. The company's mobile infrastructure and optical equipment portfolios are the first to have experienced some product cuts.

As CEO Pat Russo explained during today's earnings conference call, it's a move the company's customers needed to hear. A lack of information about which products were likely to survive the Alcatel/Lucent merger led to some carrier customer indecision towards the end of 2006, and that, in turn, contributed to a poor quarter's numbers for the newly formed equipment giant.

"We had to address the portfolio and rationalization -- we had to provide clarity for our people and our customers. For the most part, we have finalized the product portfolio," based around the strategic areas the company is focused on, which Russo said are IMS, 3G, value-added services, next-generation optical and data, and broadband access in fixed and mobile. So, quite broad, really.

Yet Russo was still coy about releasing any details about products that are being discontinued. Only when asked to confirm a particular decision in the wireless business was any detail forthcoming.

Here's what the company has made public. In its fourth-quarter and full-year results presentation today, the company recorded restructuring costs of €577 million (US$749 million). The main components of this were "write-offs of intangible assets related to 3G mobile & optical/data" and "product termination related to 3G mobile & optical/data." General merger-related costs and headcount reductions accounted for less than €60 million ($78 million).

"We did a lot of work in advance [of the merger] in terms of making decisions about the portfolio and the roadmap -- how to blend and merge the feature functionality that's important to the customers, and you need to plan that to go over a couple of years. For the most part that is done, but we couldn't communicate that until we were combined," said Russo.

The process of telling the carriers happens in two phases, added the CEO. "First, we need to talk about the general portfolio, about what customers can expect. That's followed by the more technical briefings that the tech folks want to have to understand specifics around roadmaps, timeframes, and feature functionality. We started this as soon as we could, but we have a lot of customers and it takes a long time."

As a result, the first quarter of this year will also be hurt by some further carrier indecision about purchasing, and revenues are expected to be lower compared with a year ago. And that's another reason the company is making further cost reductions. (See Alcatel-Lucent Job Cull Hits 12,500.)

Russo also claimed that, among the product rationalization decisions, "there were no surprises," and that customer reaction to the decisions made has been "good." She added: "A lot has been done, but there's obviously a lot more to do."

So what has been done?

Find out on Page 2...

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