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Alcatel-Lucent faces another crisis year
Published: 8 January, 2010
Tags >> Alcatel-Lucent
The pressure on Alcatel-Lucent will only get worse in 2010, as Ericsson consolidates its lead in wireless equipment and Huawei strengthens its hand. The French giant is "doomed to remain a low profit, low growth company, struggling with businesses that are either not very profitable or sub-scale."
This damning verdict came from Bernstein analyst Pierre Ferragu, in an interview with the London Financial Times, but is shared by other observers, who conclude that Alcatel-Lucent is weaker than the pre-merger sum of its parts. When the deal was announced in April 2006, the combined company had a market capitalization of €30bn. Today, this hsa fallen to €5.6bn. CEO Ben Verwaayen, one of the best assets ALU still retains, remains confident that his firm will break even in its 2009 fiscal year, but he does define break-even as 'adjusted operating profit', excluding items such as goodwill impairment.
The FT analysis says that Alcatel and Lucent "correctly saw economies of scale as the route to better profitability", spreading R&D costs over a larger revenue base to improve margins, and gaining cost savings. But the integration was badly executed and dogged by cultural differences, and Ericsson and Huawei exploited this ruthlessly.
This has helped Ericsson survive the downturn relatively intact, partly because of its increasing shift towards services. According to the latest survey of the network services sector, Technology Business Research says the Swedish giant was the only vendor to top the $2bn level in quarterly services revenue in the third quarter of 2009. Although growth slowed in north America, its early investments in India and China were starting to bear fruit and it saw 23% year-on-year increases in Latin America and 12% in Asia-Pacific.
Nokia Siemens and ALU tied for second place, each reporting slightly more than $1.6bn in services revenue for the quarter, while IBM and HP-EDS were about equal in fourth. Cisco had the highest services growth rate, at 7% year-on-year for the quarter, followed by ZTE and Huawei.
