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Could Verwaayen take Alcatel-Lucent out of mobile?
Published: 2 December, 2008
Tags >> Alcatel-Lucent
Speculation is mounting that Alcatel-Lucent could exit the mobile infrastructure market in order to rescue its profitability and drastically cut costs. New CEO Ben Verwaayen has promised to outline a radical turnaround plan on December 12, but until this week, few had considered it might be as radical as to transform ALU back into a fixed line company.
However, with the stock still in freefall and the mobile business dragging down profits - and requiring massive investment in new products in order to remain competitive - the prospect of a withdrawal is not looking as fantastic as it would have done when Alcatel and Lucent merged two years ago, a $34bn deal that is still causing huge operational problems. Post-merger, the group is now worth just $5bn - only three times the amount that the merger was meant to save in annual synergies - and the stock value has fallen 66% this year (and 55% in 2007).
Verwaayen, a hugely respected former CEO of British Telecom, was brought in to fix the mess, replacing former Lucent CEO Pat Russo and Alcatel chief Serge Tchuruk at the head of ALU. Although the company denies any intention of exiting the mobile sector, Verwaayen would not be scared of such a dramatic step if it will achieve his ends. ALU's mobile business is far smaller than that of Ericsson and Nokia Siemens, though it does represent 30% of revenues and, while lossmaking, throws off large amounts of cash. Without it, the French giant would be thrown back on other telecoms activities, notably - as one pro-exit analyst, Thomas Langer of West LB, put it - "the fixed story: copper to fiber optics, software and integration". This would, of course, put ALU at a disadvantage in the operators' race towards convergence, all-IP and integrated cores, which has prompted Ericsson to increase its investment in fixed line technologies over the past few years, and one analyst described a possible departure from mobile businesses as "suicidal".
An ALU exit would be a major step in the ongoing consolidation of the wireless infrastructure sector, with Nortel and Motorola also believed to be weighing up the pros and cons of staying in a business which is increasingly about massive scale, and where the aggressive progress of Huawei, and the market weight of Ericsson, are creating a cut throat price war.
