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3G/HSPA

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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materialgirl 12/5/2012 | 3:14:34 PM
re: AlcaLu Makes Product Cuts Dear desi and tmc1:
Thank you for your replies. Just sitting at 10,000 feet, CSCO, with $8.4B in revenues, up about 15% year-on-year looks healthier than ALU at 4.4B Euros and shrinking. CSCO is also forcasting 15-17% growth, versus 5%-ish for ALU.

CSCO also makes more from their low-margin advanced tech business than they do from routers. They do not seem to fear low-margin markets, probably because they plan to tie them into a bigger bundle.

It also appears as though their CRS is finally debugged, delivering $150M in Q2 revenues, up 400% year-on-year. It has been out over two years now.

It just seems as though CSCO is cranking, probably at cable vendors, while ALU is sinking. Cable vendors seem more successful at the triple play than telcos anyway. Does ALU sell to them?
ThurstonHowell3rd 12/5/2012 | 3:14:32 PM
re: AlcaLu Makes Product Cuts The BSTDX 9000... odds are 90% of LR content runs over this product... without a doubt the greatest single telecom platform ever concieved...

Gilligan - I'm feeling misty... now fetch me another drink and don't forget the umbrulla.
corwin0 12/5/2012 | 3:14:32 PM
re: AlcaLu Makes Product Cuts I agree with desi on almost all points, except for the use of the terms "cheap" and CRS in the same phrase. Unless there is a ! before cheap, I don't think the term "cheap" can be used with CRS.

:)

Corwin
jasanz 12/5/2012 | 3:14:32 PM
re: AlcaLu Makes Product Cuts tmc1

If you say that "Cisco makes 80% of revenue from Enterprise", how can you say that "Cisco is NOT a carrier company anymore", if they make 15%-20% from SPs? That is more than JNPR alone, for example...
tmc1 12/5/2012 | 3:14:32 PM
re: AlcaLu Makes Product Cuts material girl,

first off, you are comparing euros to dollars and they are not the same.

second, cisco has 80% of their revenue from enterprise and ALU has probably less than 5% from enterprise so who is really selling more to the carrier market? Not cisco.

third, cisco's only real "low margin" business that i can think of is linksys and that is such a small part of their overall revenue it does not matter.

CRS is a capable product and selling pretty well but it is probably the ONLY carrier class product that cisco makes/sells and certainly not the one making them money with carriers... that would be the 6500/7600 line.

Cisco is NOT a carrier company anymore (if they ever really were). They are an enterprise company that uses the security of their unchallenged enterprise fiefdom to cherry pick the carrier market. They do not sell carrier solutions. They do not have a complete IPTV solution, probably don't really want one and probably will never have one. Access gear and optics just doesn't make enough margin and is too competitive.

Honestly, I think Cisco just want's to cherry pick the high margin products and nothing wrong with that... but they are not eating anyone's "breakfast, lunch or dinner" in IPTV... best case they eat ALU's dessert when their back is turned.
desiEngineer 12/5/2012 | 3:14:31 PM
re: AlcaLu Makes Product Cuts I guess you weren't one of the first few. I guess they have jacked up the price, now that they have the marketing numbers after the initial giveaways.

-desi
corwin0 12/5/2012 | 3:14:31 PM
re: AlcaLu Makes Product Cuts Materialgirl,

I wouldn't necessarily point to the CRS as an example of how Cisco "has it right." If you are the only girl at the dance, of course people are going to dance with you. If anyone thinks that there is a REAL competitor, architecturally, to the CRS, then they may want to go back to school. The sad thing is that even though it is the only real game in town, it took Cisco 2 years to establish it as such.

Corwin
corwin0 12/5/2012 | 3:14:31 PM
re: AlcaLu Makes Product Cuts The status of Riverstone products going forward I think is, for the most part, irrelevant to the continued success of Imagenio. I think, if you care to look, that Imagenio does not depend specifically on Riverstone, but does require a solid distributed edge network. I belive that ALU can deliver that network on either of it's edge product lines, should it care to (and should Telefonica care to).

Corwin
Stevery 12/5/2012 | 3:14:30 PM
re: AlcaLu Makes Product Cuts I wouldn't necessarily point to the CRS as an example of how Cisco "has it right." If you are the only girl at the dance, of course people are going to dance with you.

??? If you've been smart enough to be the only girl at the dance, either by getting there first or eliminating competition, then that sounds a lot like doing something in the realm of "has it right".
materialgirl 12/5/2012 | 3:14:30 PM
re: AlcaLu Makes Product Cuts Dear tmc1:
Actually, CSCO reports 25% of revenues as coming from carriers, if you believe their reporting. Enterprise represents 45%, and small business another 25%. So, they are getting more service provider-ish all the time, which I believe is the point.

I am not an IP-TV fan. As of 12/06, we had all of 200k domestic IP-TV customers, 68M cable TV customers and probably around 5M cable voice customers (4M between CMCSK and TWX alone).

With cable set-top demand growing fast worldwide, I think IP-TV is a cable play rather than a telecom play. I do not think they will scale. CSCO provides what cable vendors want. They are the ones growing capex numbers. I therefore think the future lies with CSCO and cable, rather than IP-TV and ALU. That's how they eat breakfast, lunch and dinner. Perhaps CSCO is not carrier class, but then perhaps carrier class is not what matters here, but rather cable class.

Finally, why is the JNPR T-series, which is growing at 40%/yr, not in the came class as the CRS? What about AVCI, since T seems to like them?
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