Can new bosses fix Alcatel-Lucent‾

Jennifer L. Schenker
08 Sep 2008

Ben Verwaayen's first morning in the job as the new chief executive of Alcatel-Lucent (ALU) on Sept. 2 provides a hint of how rapidly things are set to change at the troubled Paris-based maker of telecommunications equipment. When Verwaayen asked for business cards, he was told they would take three days. Not good enough. He demanded"”and got"”them in three hours.

Verwaayen, 56, recently retired as CEO of British telecom giant BT Group (BT) after leading a solid turnaround that transformed the telco into a leader in broadband, Internet Protocol (IP), and IT services. A native of the Netherlands, Verwaayen previously ran the former Dutch national phone monopoly, then known as Royal PTT and now called KPN (KPN.AS), helping it adjust to increased competition. He also served several years as the vice-chairman of Lucent before its merger with Alcatel.

Widely admired as a no-nonsense, quick-moving manager, Verwaayen won't be working alone to rescue Alcatel-Lucent. The company also announced a new chairman on Sept. 2, French business leader Philippe Camus, who is known for his political dexterity and deft touch with cross-border mergers. That skill will come in handy at Alcatel-Lucent, which has been rife with conflict between its former French and American units. Camus was a key architect of European Aeronautics Defence & Space (EAD.PA), created by a Franco-German merger in 2000, and shared the post of CEO for five years with a German counterpart, Rainer Hertrich.

Daunting problems

Some analysts and investors are disappointed that the board didn't tap Mike Quigley, a former Alcatel president, as chief executive. But many say that Verwaayen and Camus, with their respective experience in telecom and French business, come as close as possible to a dream team. The question is whether anyone can turn around the company. Alcatel-Lucent has been hit hard by global economic uncertainty, tough competition from the likes of Chinese telecom equipment vendor Huawei Technologies, and weakness in parts of its product line. What's more, integrating the French and American halves of the company has proven far more challenging than anticipated, resulting in management and cultural conflicts. The result has been six consecutive quarters of losses and a decline of more than 50% in the company's market capitalization since the merger.

The latest financial results, issued July 29, underscore just how tough a job the new leadership team faces. Alcatel-Lucent posted a $1.7 billion quarterly loss, including a $1.3 billion writedown on its North American wireless business inherited from Lucent. Quarterly revenues were down 5.2% year-on-year, to $6.5 billion, and the company warned that widening economic malaise in Europe could further dampen sales.

The company's dire results prompted CEO Patricia Russo and Chairman Serge Tchuruk to resign (, 7/29/08). Tchuruk steps down Oct. 1, but Russo is still occupying her seventh-floor office at the company's headquarters on Paris' rue Boétie. Verwaayen, a former colleague of Russo's at Lucent, is camping out in a conference room during the transition, which is expected to take several weeks.

Worse than others

No question, other telecom equipment makers face similar difficulties with the market, but they haven't fared as miserably as Alcatel-Lucent (BusinessWeek, 6/18/08).

Overall telecom investment worldwide is forecast to rise 2.5% to 5.5% this year, while Alcatel-Lucent predicts its sales will decline by low-to-mid single digits.

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