The AlcaLu train wreck

30 Jul 2008

Alcatel-Lucent has been a train wreck waiting to happen. After six quarters of deficits, and the loss of more than half of shareholder value in the last year, the board has had enough.

The Financial Times described it as "one of the most disastrous international take­overs in French corporate history".

Fittingly, the chief architects from both Alcatel and Lucent were thrown overboard. Tchuruk and Russo will go at the end of the year. Former Lucent CEO Henry Schacht will step down from the board now.

The immediate disaster was the 1.1 billion euro ($1.7 billion) loss for the quarter, way below expectations, on a 5.2 % fall in sales over last year.

The bigger disasters have been the cultural and business mismatch of the two firms and the poor execution of the merger.

But the biggest of all was that Alcatel overpaid for the US partner. Lucent is a North American and CDMA-focused company and not worth the 12 billion euro price tag.

A telling paragraph from Tuesday's announcement underlines this: "During the second quarter of 2008, the CDMA activity declined at a higher pace than the company had planned. This was due, to a large extent, to a strong reduction in the capital expenditure of a key customer in North America."

The company took an $810 million impairment charge for the quarter on CDMA goodwill. With the world going to W-CDMA and LTE, there's little upside in the CDMA business. The carrier business fell 3% in the quarter.

Granted, it is a tough market for the European and North American comms vendors. Like AlcaLu, Nortel and Motorola are both struggling against the market leaders Ericsson (wireless) and Cisco (IP and enterprise), on one side, and the relentlessly growing Chinese vendors on the other.

On the upside, costs came down 8.6% in the quarter and services grew 16%. But that has come too late for Tchuruk and Russo.

Related content

No Comments Yet! Be the first to share what you think!