Alcatel's Russo: There is no downturn

16 May 2008

Is the market for telecom network equipment, like most of the economy, in a downturn‾ Not according to Alcatel-Lucent CEO Patricia Russo.

Sure, the world's largest maker of telecom gear didn't wow Wall Street with its first-quarter report, and there's been plenty of skepticism about the company's performance since Alcatel's merger with Lucent in early 2007. On Apr. 30, Alcatel (ALU) posted a larger-than-expected decline in first-quarter sales (, 4/30/08) and forecast a slight full-year drop in revenue. Yet, the Paris company blamed a weak dollar, which erodes the value of U.S. sales when converted to euros. Excluding currency effects, first-quarter sales would have risen 6.3%. Fact is, Russo says, there are many reasons to view the telecom gear market with optimism, starting with the 'arms race' among wired and wireless service providers to deliver speedier Internet access on the networks.

Russo talked to senior writer Olga Kharif on May 7 about the outlook for the industry and the company.

Is the telecom equipment industry in a downturn‾

No, we are not in a downturn. What we are experiencing now is a market that's a bit uncertain due to the macroeconomic issues we are dealing with. We have the housing issue in the U.S. We have the credit crisis. Oil is at $120 a barrel. Fewer new homes are built, fewer new lines are put in. For smaller [network] operators around the world, it's uncertain whether or not they are going to be able to get all the credit they might like [for capital expenditures]. And that has created a bit of softness.

But we still believe that our market is flat to growing slightly when you factor in the services opportunities that we see. Our market still offers opportunities for growth. What all of us"”we and a couple of competitors"”have said is, 'Look, these are uncertain times. We want to be prudent in how we assess the market.'

What's driving growth in services‾

One, as new technologies get deployed in networks, the complexity increases, and there's a need for help and support around integration that companies like ours are very good at providing. Second, a number of operators are looking at or have already made the decision to outsource the management of their networks as a means to drive greater efficiency and as a way to focus more of their energies on marketing new services. So our business is growing quite nicely. In the first quarter, [revenue from services] grew 14%.

Will you benefit from Sprint Nextel's (S) deal with Clearwire (CLWR), Comcast (CMCSA), and other cable companies to build a new wireless broadband network based on WiMAX technology (, 5/7/08)‾

I would argue any large investment in networks offers an opportunity for us. We have worked with a number of those companies. It also looks like, at least in the short term, there may be some reliance on Sprint's network [to provide mobile Internet services for the consortium partners while the WiMAX network is built]. And, obviously, Sprint is an important customer of ours. You can rest assured we'll be working with them to see what might unfold for us.

Is the fourth-generation cellular technology known as Long-Term Evolution (LTE) a big opportunity‾

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