2010

Alcatel Chief Verwaayen's Credibility Tested as Losses Deepen
From Business Report; San Francisco Chronicle ~ May 06, 2010 ©2010 Bloomberg News May 7 (Bloomberg) --

Ben Verwaayen took over as Alcatel- Lucent SA Chief Executive Officer in 2008 with a promise to turn the unprofitable telecommunications equipment maker around. Now, his credibility is being tested.

The Paris-based company yesterday posted a first-quarter loss that was more than double what analysts had estimated, bringing the total deficit since Alcatel-Lucent's creation in 2006 to 9.78 billion euros ($12.4 billion). Verwaayen was optimistic about the company's outlook, saying the second quarter would be stronger and reiterating targets for 2010 margins. Some analysts remain skeptical.

"The problem is, the level of trust in those sorts of comments is going down," said Pierre Ferragu, an analyst at Sanford Bernstein in London.

The 58-year-old former CEO of BT Group Plc blamed the larger-than-estimated loss on component shortages, and said the dearth of parts is an indication of rising demand in the global economy. That failed to bolster Alcatel shares, which tumbled 6.5 percent to 2.1 euros yesterday. Since Verwaayen was appointed in September 2008, Alcatel shares have lost almost half their value, eroding market value by 4.8 billion euros.

Alcatel's first-quarter loss of 515 million euros -- more than double the average of estimates from analysts of 244.4 million euros -- means the company has lost money in every quarter except two since 2006, when Alcatel SA bought Lucent Technologies. Verwaayen maintains that the company remains on course for his three-year turnaround plan.

The "aspiration to be at the end of 2011 a normal company is absolutely still there," he said yesterday.

Different Challenge

During Verwaayen's time as head of BT, profit almost doubled, going from 995 million pounds ($1.49 billion) in 2002, the year he took over, to 1.74 billion pounds in 2008.

The challenges he faces at Alcatel are very different.

"He came into a situation with a very low bar to cross," said Jason Willey, an analyst at Standard & Poor's Equity Research in London. Still, "I'm not sure there was that much belief he was going to get exactly where he said in that timeframe."

The French company and its European rivals Ericsson AB and Nokia Siemens Networks are confronting the rapid emergence of competition from Chinese companies including Huawei Technologies Co. and ZTE Corp.

Ericsson, the world's largest wireless equipment supplier, on April 23 posted a 27 percent drop in first-quarter profit. Nokia Siemens Networks reported an operating loss of 226 million euros, reversing a profit in the previous quarter.

Competitive Landscape

Profit in 2009 at closely held Huawei, China's biggest maker of phone equipment, more than doubled to 18.3 billion yuan ($2.7 billion), the company said in March. ZTE first-quarter profit rose 40 percent to 109.9 million yuan.

The Chinese companies have made the competitive landscape tougher, Willey said.

"Huawei and ZTE have the ability to operate and compete in a different manner," he said. "For the European players, it's even more competitive than it was."

Huawei has been aggressive in winning business from some of the world's biggest mobile operators, including China Unicom, Telstra Corp, and Vodafone Group Plc. The Shenzhen, China-based manufacturer is also targeting a "breakthrough" in the U.S., Western Europe vice-president Tim Watkins said last year.

Competition in the equipment industry claimed a notable casualty in 2009 when Mississauga, Canada-based Nortel Networks Corp. filed for bankruptcy protection after reduced spending by telecom operators and price competition.

Boost Investment

European suppliers including Alcatel, Ericsson, and Nokia Siemens Networks must continue to invest in innovation while also cutting costs in order to keep ahead of emerging-market competitors, said Patrik Karrberg, a researcher in the London School of Economics' Information Systems and Innovation Group.

For emerging-market companies, "it's easy to catch up because you can copy your way to a certain point," he said. However, "there will be a point where they will have caught up and then have to invest in R&D."

Verwaayen is betting that surging demand for data-hungry devices like Apple Inc.'s iPhone will drive investments in the higher-end network infrastructure the Paris-based company provides.

It has scored some notable successes. It's supplying so- called fourth generation wireless technology to AT&T Inc. and Verizon Communications Inc., the two largest U.S. mobile operators, and rebuilding emergency-service communication networks for the German government.

Uphill Task

Alcatel may benefit more than other European equipment suppliers from the U.S. network upgrades because of its presence in North America through Lucent, said Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart.

Still, after yesterday's results, the company faces an uphill struggle to meet its stated target of reaching an adjusted operating margin between 1 percent and 5 percent this year, he said.

Some investors are not willing to wait.

"I thought the company would get its act together," said Ulf Moritzen, who helps manage about 1 billion euros at Hamburg- based Aramea Asset Management, which sold its Alcatel shares late last year. "Alcatel lost a little of the pace. We decided to focus more on companies with a clearer outlook for growth."

--Editors: Vidya Root, Heather Harris

2009

Alcatel-Lucent Turns First Ever Profit
By Lionel Laurent; Forbes ~ Jul 30, 2009

LONDON - When France's Alcatel bought America's Lucent Technologies in 2006 for $13 billion, bringing together a fixed-line pro and a wireless champion, the deal seemed to make business sense. So far the opposite has been true: Alcatel-Lucent's mounting losses since then have sent the network supplier's stock down 80% and led to a management shake-up, with Ben Verwaayen picked as the new boss last year.

But Thursday marked a milestone for Alcatel-Lucent, when Verwaayen was able to announce a first-ever quarterly net profit of 2 million euros ($2.8 million), or one euro cent per share. There won't be much champagne poured, though, given that the net profit is set to disappear as quickly as it arrived. Alcatel was unprofitable at an operating level, and was only boosted by one-off gains including the sale of its stake in defence firm Thales.

"[A net loss next quarter] is fairly certain," said Nicolas von Stackelberg, an analyst with Oppenheim. He said that when excluding the one-off gains for the second quarter, which gave Alcatel an after-tax boost of 277 million euros ($389.6 million), the company suffered a loss of 11 euro cents (15 cents) per share--or exactly what analysts had forecast.

Investors found some hope in the results, however: Shares of Alcatel-Lucent soared 6.6%, or 12 euro cents (17 cents), to 1.92 euros ($2.70), during afternoon trading in Paris. CEO Ben Verwaayen's outlook statement said that the company still expected to break even on an "adjusted" operating profit level, which excludes the impact of the declining value of assets acquired from the Lucent takeover.

Lucent's wireless expertise was based mainly in CDMA, or code division multiple access, a type of network technology that has not delivered huge growth outside of the United States or key Asian markets. China's Huawei has also turned up the competitive pressure on Alcatel-Lucent in this technology.

Alcatel's plan for the future lies mainly in cutting more costs, and earlier this month the company said it planned to slash an extra 850 jobs in France over the next two years. Last month, Alcatel announced a 10-year outsourcing deal with Hewlett-Packard, which will see about 1,000 workers transferred to HP.

Alcatel Chief Tries to Paint a Rosy Picture
By Kevin J. O’Brien; The New York Times ~ Feb 18, 2009

BARCELONA — 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.”

Ms. Verwaayen said competitors have a self-interest in trying to paint Alcatel-Lucent as weak.

“I hear everybody,” Ms. 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.”

2008 THIRD QUARTER

Alcatel-Lucent the world's largest supplier of fixed-line phone networks, said Chief Executive Officer Patricia Russo and Chairman Serge Tchuruk quit after the sixth straight quarterly loss. Alcatel-Lucent said it will begin looking for replacements for Russo and Tchuruk immediately. Henry Schacht Russo's predecessor as Lucent CEO, will step down from the board. The company's stock rallied as much as 6 percent in Paris trading after the announcement. The net loss widened to 1.1 billion euros ($1.7 billion), or 49 cents a share, from 586 million euros, or 26 cents, a year earlier, the Paris-based company said in a statement today.
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2007 FOURTH QUARTER

The Pension Benefit Guaranty Corporation (PBGC) has announced the maximum insurance benefit for participants in underfunded pension plans terminating in 2008. Click on the headline above to view the PBGC news release and chart showing the 2008 annual and monthly maximum benefit guarantees for retirees from age 75 to 45.

2007 SECOND QUARTER