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Pressure's On in Paris

Ray Le Maistre
7/26/2012

2:35 PM -- When a CEO of a company that has lost 80 percent of its value in the past 12 months admits he and his senior aides made some big mistakes about what was going to happen in its core market, you have to ask how much longer he will be in charge.

That's the situation now facing Ben Verwaayen, CEO of Alcatel-Lucent (NYSE: ALU), which has seen its share price drop to $1.03 today from $5.23 a year ago.

Having announced a quarterly net loss of €254 million ($309 million), a year-on-year dip in revenues of more than 7 percent and a cost-cutting program that will result in at least 5,000 job losses, Verwaayen admitted Thursday, during the vendor's earnings conference call from Paris, that he had made "certain assumptions" last year about how the company would fare during 2012, but "they were wrong." (See Alcatel-Lucent to Cut 5,000 Jobs.)

Wrong enough to trigger a profits warning about a week ago. (See AlcaLu Issues Full-Year Profit Warning.)

So now Verwaayen is cutting jobs, looking for unprofitable markets and deals to exit and also examining the company's product portfolio to see if there's anything that can be culled to reduce costs and improve margins. (See Alcatel-Lucent Could Exit 25% of Services Deals.)

So far, though, Verwaayen hasn't said that he is definitely going to slim down the portfolio to any major extent to give the company more focus. He noted today that the company's portfolio has been tweaked, but little more than that.

There's no doubt the pressure is on Verwaayen. There is also no doubt that this is a CEO who really cares: This isn't just his day job, he's not just picking up the pay check. He really wants to turn this company around and make it a healthy, profitable, leading-edge company that others have to follow.

But strong will isn't enough. Making the right calls and delivering the kinds of results associated with a stable, healthy company is paramount. If Verwaayen is shown again to have made incorrect assumptions, or if the company's share price lingers around or below the $1 mark (could he survive a delisting?), or if the financials fail to improve meaningfully and consistently during the next three to four quarters, then it's hard to see that Verwaayen would be hosting the second-quarter 2013 conference call this time next year.

— Ray Le Maistre, International Managing Editor, Light Reading

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