The ongoing review of Alcatel-Lucent's managed services deals has resulted in a headcount reduction of thousands and the cancellation of a number of contracts, said CFO Paul Tufano during the vendor's first-quarter earnings conference call Friday.
The company announced a review of its managed services engagements in July 2012, with the aim of cutting costs and increasing margins. At the time, Tufano noted that 25 percent of AlcaLu's 68 managed services deals would either be renegotiated, exited or not renewed when the initial contract period expired, and that 15 deals were under review. (See Alcatel-Lucent Could Exit 25% of Services Deals.)
By the end of March, AlcaLu had "addressed 10 of the 15" deals identified last July, noted Tufano on Friday. Some have been exited, while others are in the process of renegotiation or termination, resulting in a headcount reduction of 3,200 from the Managed Services business unit during the first quarter of this year.
In total, Alcatel-Lucent reduced its staffing levels by 5,400 during the first three month of 2013.
But that doesn't mean the vendor isn't seeking new business. Tufano said that the company is now focused on signing professional services deals related to network transformation projects, while deals based on network operations and maintenance are out of favor. (See Euronews: AlcaLu Scores at KPN, Alcatel-Lucent Wins $1B Deal in India and Alcatel-Lucent Wins Managed Services Deal.)
The overall impact of the new focus is likely to be lower managed services revenues but higher margins, with Tufano confirming that the review process will ultimately result in the loss of deals worth about €400 million ($523 million).
During the first quarter, AlcaLu's managed services unit generated revenues of €204 million ($267 million) and reported an operating loss of €5 million ($6.5 million). If the company's contract evaluation strategy is the right one, the managed services unit should soon start reporting positive operating income on a quarterly basis.
Now it's the turn of AlcaLu's other business units, particularly Networks & Platforms, to come under scrutiny. (See Alcatel-Lucent CEO Preps Kill List.)
CEO Michel Combes declined to elaborate on any early thoughts he may have about the vendor's future, saying only that he will share his views and decisions with staff and investors in the early summer and that he is focused on growth and performance.
— Ray Le Maistre, Editor-in-Chief, Light Reading