Alcatel SA (NYSE: ALA; Paris: CGEP:PA) has regrouped its divisions, reducing their number from four to three, in an effort to cut operating expenses and position itself to be a more service-oriented business (see Alcatel Shuffles Its Pack).

Alcatel's calling its new market segments Fixed Communications, Mobile Communications, and Private Communications. But the company's quick to say nothing's being dropped. "We're not giving up any product areas," says spokesman Klaus Wustrack.

Instead, Alcatel's old divisions will be folded into the new structure, as follows:

Table 1: Alcatel Regrouped

Old division	Included�	Sales 3Q02 (millions)	Now part of�
Carrier networking	Broadband equipment, DSL gear, GSM infrastructure, applications software, voice switching, services	� 1,720.00	Fixed communications and mobile
Optics	Optical fiber and components for terrestrial and submarine applications	� 704.00	Fixed communications
e-Business	Enterprise handsets, voice and data networking equipment	� 506.00	Private communications and mobile
Space and components	Satellite equipment and non-optical components	� 660.00	Private communications
Source: Alcatel financial announcements

Despite company assertions that nothing is being replaced by the new organization, the new groups rise amid ongoing changes and layoffs. Alcatel's declared plans cut its workforce another 28 percent by the end of 2003 -- reducing the census to 60,000 from the 84,000 it had at the end of June 2002. The ongoing process is being undertaken country by country and product line by product line, sources say.

"The implementation of this new organization is also an opportunity to better ensure a greater efficiency in the execution of the undergoing restructuring plan," Alcatel CEO Serge Tchuruk said in a press statement.

Wustrack confirmed reports that Alcatel employees had demonstrated against ongoing layoffs in Paris yesterday but declined to comment.

Alcatel's news recalls similar restructuring efforts at competitors such as Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) (see Lucent Clarifies Product Strategy and Nortel Adds Another Enterprise Chief).

Those companies have also hopped the enterprise bandwagon, citing opportunities to sell equipment to large financial organizations, governments and utilities, universities, and other organizations that run their own networks but aren't stymied by the telecom capex crunch facing North American and European incumbent carriers.

Wustrack says Alcatel earns about one-third of its revenues from sales to large organizations that don't fit the description of traditional service provider. The regrouping is also a chance to create new kinds of revenue, for example from vertical applications or value-added services for enterprise customers.

Alcatel and its rivals see a key marketing opportunity in offering "solutions" that encompass products from different divisions in a single sale and add in consulting and integration services, which many firms see as a differentiator for large suppliers.

Of course, the ultimate success of the strategy remains to be proven. In Alcatel's case, as with other suppliers, the ability to mine the enterprise space successfully will depend on the vendor's ability to provide products that fit specific demands. This ability can be questionable in the face of ongoing product and staff "rationalizations." — Mary Jander, Senior Editor, Light Reading