Time Running Out For Alcatel's CEO?

Time Running Out For Alcatel's CEO Russo?

As the deadline looms for Alcatel-Lucent's Chief Executive Patricia Russo to deliver an accelerated rescue plan for the struggling network supplier, investors are already sharpening their knives.

Intense market speculation that Russo plans to step down pushed shares in Alcatel-Lucent up 10 eurocents (14 cents), or 1.5%, to 6.69 euros ($9.50) during afternoon trading in Paris, despite a firm denial from the company.

"This rumor is without merit," said a spokeswoman for Alcatel-Lucent on Wednesday, adding that Russo's decision to present an "action plan" with the company's third quarter results at the end of the month was not an ultimatum or deadline.

But it is widely believed that investors would welcome the departure of Russo, who has presided over Alcatel-Lucent's three profit warnings and messy restructuring process since last year. The $11 billion merger between France's Alcatel and American Lucent in 2006 has brought few benefits and plenty of doubts as the struggles continue.

One possible replacement for Russo could be Mike Quigley, former Chief Operating Officer of Alcatel but who stepped down to a position of strategic oversight following the merger.

At the end of last month, press reports claimed that the Alcatel-Lucent board had given Russo only one month to accelerate the company's 1.7 billion euro ($2.4 billion) cost-cutting program, or the so-called "action plan." Analysts believed that the reported ultimatum would benefit the company, whether it resulted in further cost savings or a change of CEO.

One question is whether the problems that led Alcatel-Lucent to report a net loss of $802.5 million last quarter are solely due to internal problems. Market leader LM Ericsson's shocking profit warning on Tuesday dragged down other stocks in the technology sector, including Alcatel-Lucent and Siemens, and surprised analysts with a drop in operating profit margins.

"Following relative margin stability since the second quarter of 2004, the scale of the margin decline in networks was startling," said Sherief Bakr, analyst with Citigroup.

But as long as merger issues weigh on Alcatel-Lucent, it will find itself unable to cope with problems facing the sector as a whole.