Shift Happens for ALU-E

Shift Happens for ALU-E

By Dave Michels July 5, 2013 Leave a Comment
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Shift Happens for ALU-E by Dave Michels

Last month, Alcatel-Lucent’s (ALU) new CEO Michel Combes announced details how he intends to return the beleaguered firm to profitability. He calls it the “Shift Plan,” and that’s what it better do. In 2012, under CEO Verwaayen, ALU reported a net loss of $1.81 billion, and since the 2006 merger of Alcatel and Lucent the company has lost about $13.4 billion.

Combes replaced Ben Verwaayen as the CEO last February. He is a 20-year telecom veteran with a reputation for cost cutting, and most recently served as the CEO for Vodafone Europe. His new Shift Plan includes more than a billion euros of asset sales, 2 billion euros in debt re-financing, followed by a further 2 billion in debt reduction that could include issuing new shares.

The Shift plan specifically calls for five shifts:

  1. Creation of four verticalized business lines with full P&L accountability: IP routing and Transport, IP Platforms, Wireless, and Fixed networks.

  2. Customer diversification, to expand addressable markets beyond top tier service providers.

  3. Strengthen the balance sheet by realizing at least €2 billion of combined fixed cost savings and exceptional cash inflow.

  4. Co-investments with customers and partners in strategic growth areas.

  5. Development of an indirect sales model.

Combes said, "To deliver on this strategic plan, we need to regain competitiveness - that means having the right products, quality of execution, and lowering our costs to be similar to peers." It’s an impressive and reasonably well received plan, only one question: what about Alcatel-Lucent Enterprise and its suite of voice and UC solutions?

In 2012, ALU reported total revenue at €14.4 billion. ALU Enterprise combined with U.S. Government-related activities represented €0.9 billion, so it didn’t get a lot of direct treatment in the Shift overview. However, it does not appear that ALU-E fell into the section called “Asset Disposals” either, but rather the “Other” category to be “managed for cash.”

Michel Emelianoff, the President of Alcatel Lucent Enterprise, reassured customers and partners with a letter that contained the following excerpts:

  • “Alcatel-Lucent Enterprise’s current strategy and organization is fully in-line with the new corporate approach and hence Alcatel-Lucent Enterprise can continue the strategic direction started in 2012.”

  • “We will continue to develop products and solutions.”

  • “The Enterprise operating model, go-to-market, and strategy remain the same.”

  • “Alcatel-Lucent Enterprise is financially stable.”

Reassuring yes, but it doesn’t mean smooth sailing. ALU has some major cost cutting ahead. It needs to reduce is 72,000 employees in order to get its quarterly revenue per employee in-line with competitors such as Nokia-Siemens and Ericsson. To match sales per employee of these competitors, ALU will need to reduce headcount by another 14 percent.

An ALU comeback is certainly possible. Ericsson was in a similar state in 2002. The firm sold off businesses, slashed its workforce by more than 50,000, and focused on equipment related to mobile services. Today Ericsson is a leader in wireless networking.

 

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