Verwaayen Unveils AlcaLu's New Plan

CEO Ben Verwaayen announces his strategy, which includes cuts of 1,000 managerial positions and product line decisions

Craig Matsumoto, Editor-in-Chief, Light Reading

December 12, 2008

3 Min Read
Verwaayen Unveils AlcaLu's New Plan

Another 6,000 job cuts, including 1,000 managers and 5,000 contractors, are pending at Alcatel-Lucent (NYSE: ALU) as part of CEO Ben Verwaayen's new master plan, which was revealed today. (See AlcaLu Preps Major Realignment.)

Details of the company's new roadmap come just a day after the vendor announced further senior management appointments. (See Fresh Blood at AlcaLu.)

The job cuts follow 16,500 layoffs incurred since Alcatel and Lucent merged on Dec. 1, 2006. (See AlcaLu Cuts 4,000 More Jobs and Alcatel-Lucent Job Cull Hits 12,500.)

The vendor believes the latest cost efficiencies will help it reduce its annual expenses by €750 million (US$1 billion) by the end of next year.

But 2009 is going to be so tough that AlcaLu doesn't expect to make any money next year: The vendor estimates that the "market for telecommunications equipment and related deployment services" will be worth between 8 percent and 12 percent less (at constant exchange rates) next year, compared with 2008, and that its "adjusted operating profit" will be "around break-even in 2009."

Alcatel Lucent isn't the only major vendor expecting a rough ride next year. (See Nokia Siemens Braced for Tough 2009.)

AlcaLu expects things to improve after 2009, and believes it can "achieve a gross margin in the mid to high thirties range and an operating margin in the mid to high single-digit range in 2011."

But Verwaayen's strategy goes beyond just cutting jobs. AlcaLu has targeted what it believes is a gap in the network technology market: a means of making the bedrock capabilities of the telecom network -- such as security, billing systems, and privacy -- available to "over the top" applications from the so-called "Web 2.0" world.

From a technology and product line perspective, AlcaLu's overall aim is to combine network technologies and applications with the openness of Web-based functionality. That goal means a more focused technology development roadmap that will see some product lines streamlined and others largely abandoned.

Among the winners are IP Multimedia Subsystem (IMS), optical, IP, and fixed and wireless broadband, including the so-called 4G mobile technology, Long Term Evolution (LTE). More mature technologies, including CDMA 1x and GSM, are not being prioritized, though the next generations of those technologies -- CDMA EV-DO and WCDMA -- are among the winners, and will benefit from greater investment. (See CDMA Hits AlcaLu's Wireless Biz.) Among the technologies AlcaLu has decided not to pursue is the full mobility flavor of WiMax, with which the vendor has had some degree of success to date. The vendor is, though, continuing to invest in WiMax systems that provide a wireless broadband alternative to DSL. (See ARIA Does WiMax With AlcaLu and AlcaLu & Moto Lead Mobile WiMax.)

AlcaLu made the announcements early this morning, and Verwaayen is due to give details to press and analysts at 7:00 a.m. Eastern time. (See AlcaLu Preps Major Realignment.)

The company's share price lost nearly 8.6 percent of its value Friday morning on the Paris stock exchange, falling €0.16 to €1.69. That gives the company a market value of just below €4 billion ($5.34 billion).

Light Reading will provide updates on Alcatel Lucent's news as events progress.

— Craig Matsumoto, West Coast Editor, Light Reading

About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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