Alcatel Chief Tries to Paint a Rosy Picture

Alcatel Chief Tries to Paint a Rosy Picture
by Kevin J. O’brien

Alcatel-Lucent CEO Ben Verwaayen has been forceful in his insistence that despite his company's struggles, the equipment maker was going to stay in the wireless world and would remain a force. That impression was certainly borne out when Alcatel was chosen by Verizon Wireless as one of its vendors to roll out its Long Term Evolution (LTE) network

Just four months into the job, Ben Verwaayen, the chief executive of the struggling telephone equipment maker Alcatel-Lucent, said he had had enough of the naysayers. And they have been plentiful. Rivals have questioned Mr. Verwaayen’s decision to remain in the wireless equipment business, the fastest-growing part of the industry, where Alcatel-Lucent, the fixed-line leader, trails Ericsson and Nokia Siemens Networks. Investors have been skeptical about a reorganization announced in December that will eliminate 1,000 management jobs and 5,000 contract workers from a 77,000-member work force. And former employees say that a clash between French and American workstyles — Alcatel was based in Paris, Lucent in New Jersey — has cost Alcatel-Lucent business. During an interview at the Mobile World Congress in Barcelona, the wireless industry convention, Mr. Verwaayen insisted that he was “confident that you will find a company that is alive and kicking, a company that is a force.”

He said Alcatel-Lucent was poised to regain market share after stumbling for two years following its $13 billion merger in November 2006. Since then, the company has posted 9.4 billion euros, or $11.8 billion, in losses and 7.9 billion euros in write-downs. Although the company expected global demand for telecommunications equipment to fall by 10 percent this year, Mr. Verwaayen said Alcatel-Lucent’s comeback would begin in lucrative markets like China, where the company is bidding to supply the three largest operators with their first high-speed wireless networks. “We are among the top four wireless equipment vendors in China, and we are in the process now of entering the top three,” said Mr. Verwaayen, who was credited with turning around the British telecommunications operator BT. “We are going to stay in wireless and we are going to be a factor to reckon with.”

Some analysts welcomed the decision to take a 3.9 billion euro write-down in January as a sign of a sober recognition of Alcatel-Lucent’s shrunken status, but investors reacted negatively to the first round of job cuts. Mr. Verwaayen, while declining to say whether further cuts were in the offing, said the reductions were just the beginning of a series of hard decisions needed to remake the company.

He said Alcatel-Lucent was on track to cut its operating expenses by 750 million euros this year. He was not focused on eliminating jobs as much as eliminating duplicate product lines and refocusing the equipment maker to refine its pallet of so-called fourth-generation wireless equipment. On Tuesday, the company was awarded a contract to help build such a network in the United States for Verizon Wireless. Alcatel-Lucent has a competitive line of equipment for the new networks, he said, which will use a technology standard called Long Term Evolution. The technology is supposed to handle the explosion of wireless data from video on mobile TV, Facebook and YouTube.
In Barcelona, Alcatel-Lucent announced a successful trial of a new software it installed for China Mobile, the largest Chinese wireless operator, which saved the carrier 35 percent in energy costs by switching off the power supply to base stations during the minute intervals when they were not handling traffic. Cultivating longstanding customers like China Mobile, which began buying Alcatel-Lucent wireless equipment in the late 1980s, is a priority for Alcatel-Lucent, Mr. Verwaayen said, which will help increase revenue and profit and preserve jobs.

One analyst said that any turnaround at Alcatel-Lucent would be a long-term project. “I am not expecting the company to be profitable for a couple years,” said Richard Windsor, an analyst in London for Nomura Securities. “This is a big job.” An former Alcatel manager, Johann Günther, said a drastic reduction in the work force — with 20,000 in the United States and 11,000 in France — was unavoidable. Much of Lucent’s strength, in fixed-line networks using the North American standard CDMA, for code division multiple access, would have to be adapted to the current market, which is dominated by wireless networks based on the European GSM, or global system for mobile, standard.

“The company still has way too many employees,” said Mr. Günther, a former managing director at Alcatel Austria who left the company in 1996. “The longer the painful decisions are put off, the harder they will be to make.” A senior executive at one of Alcatel-Lucent’s rivals, who declined to be identified, said Verwaayen’s initial moves had been “confusing and avoiding the fundamental issues.” Mr. Verwaayen said competitors have a self-interest in trying to paint Alcatel-Lucent as weak. “I hear everybody,” Mr. Verwaayen said. “But I say let the customers decide. I am not asking for advice from my competitors. I’m asking my customers. And here in Barcelona, customers are telling me they have confidence in us.”