Web 2.0 for carrier systems is the heart of ALU's new plan

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Web 2.0 for carrier systems is the heart of ALU's new plan

By CAROLINE GABRIEL

Published: 15 December, 2008

READ MORE: Alcatel-Lucent

Those who were hoping for a massively radical turnaround plan from Alcatel-Lucent and its new CEO Ben Verwaayen, when he unveiled his plans for the beleaguered company on Friday, may have been disappointed, but he did map out a clear road in terms of further cost cuts; a refocusing of the product range on the limited number of growth areas to be seen among telecoms carriers; and a more long term strategy to drive revenues from 'Web 2.0 and Web 3.0'.

The scale of the cost cuts, coming on the heels of two years of reductions since the company was formed from Alcatel's takeover of Lucent two years ago, indicate the depth of the problems for the organization and its market as a whole, but at least, this time, they came hand-in-hand with some creative strategies to position for the new markets that Verwaayen believes will be available once the downturn starts to flatten out.

In the short term, he will seek to achieve breakeven and conserve ALU's cash mountain with cost cuts including 6,000 further job losses, including 1,000 managers and 5,000 contractors. These follow 16,500 layoffs incurred since the companies' merger. ALU believes its latest cuts will reduce annual expenses by €750m ($1bn) by the end of next year. Despite this, the company predicts an 8-12% downturn in the market for telecoms equipment and services in 2009, so it expects only to break even in terms of adjusted operating profit next year. After 2009, it says it can "achieve a gross margin in the mid to high thirties range and an operating margin in the mid to high single-digit range in 2011".

The focus of the more positive side of the new master plan is bringing web 2.0 techniques to the carrier world, applying web services development and delivery methods to core operator functions like security, billing and privacy. Verwaayen thinks this is a real gap in the market on the infrastructure side, with most of the work in this area focused on end user environments and handsets.

ALU will build its new strategy and R&D program around the merging of network technologies and software platforms, with open web-based functionality. The company will be focusing on three markets for this - service providers, enterprises, and selected verticals - and will also look for partners and even acquisitions to put it ahead of rivals.

Overall R&D spending will be frozen but there will be four key areas of investment to support the new strategy - IP, optical, mobile and fixed broadband, and applications enablement. This means technology winners will include IMS standards, LTE, wireline broadband systems, plus optical and all-IP platforms.

There are no plans to exit wireless or even - disappointingly for some analysts - to quit the declining CDMA market. Mature networks like CDMA 1x and GSM will "not be prioritized", though customers will be supported, but W-CDMA and even CDMA EV-DO will still be considered important activities, even though ALU had been widely expected to defocus on CDMA, and is overshadowed by Ericsson and Nokia Siemens in W-CDMA. Presumably, as market leader in CDMA, and with former arch-rival Nortel in trouble, ALU wants to eke any remaining volume and cash from this sector, while reducing its expenditure on developing CDMA.