Alcatel-Lucent
Goodbye and adieu
Jul 31st 2008
From The Economist print edition
The architects of a big telecoms-equipment
merger decide to hang up
WHEN Alcatel, a French maker of telecoms equipment, announced its plan
in 2006 to merge with Lucent, an American rival, reactions were mixed.
There was general agreement that bigger was better and that the
combined firm would benefit from greater geographical reach. But there
was also scepticism that its French and American managers would be able
to get along. With good reason, it seems: on July 29th Alcatel-Lucent
announced its sixth consecutive quarterly loss and the resignations of
Serge Tchuruk, its French chairman, and Patricia Russo, its American chief
executive. Their firm's troubles stem in large part from its internal clash of
cultures.
This clash was an unhelpful distraction,
given that the entire telecomsequipment
industry is suffering. The
bonanza of 2000-05, when European
operators upgraded their mobile-phone
networks to new "third-generation"
(3G) technology, is winding down.
Sales growth is slowing, and even
Ericsson, the industry leader, has seen
its share price fall by 50% in the past
year. Margins have also been squeezed
by the rise of Huawei and ZTE, two
Chinese firms. Their prices are
sometimes 40-50% lower than those of
Western vendors.
The merger was supposed to make Alcatel-Lucent more competitive, but
cost savings have been hard to realise, despite 16,500 job losses from a
workforce of 88,000. The combined company was also weak in W-CDMA,
the dominant 3G technology, and relied too much on CDMA, a rival
standard that is less popular. This made Alcatel-Lucent unusually
dependent on a few key customers, such as Sprint, an ailing American
operator. Alcatel-Lucent should have focused its research spending in a
handful of carefully chosen areas, says Sylvain Fabre of Gartner, a
consultancy, instead of maintaining a sprawling product portfolio.
And then there were the cultural problems. Key positions were divided
between French and American executives, as was the board. When
deciding which factories to close and which projects to fund, national
allegiances quickly came to the fore. Both Mr Tchuruk and Ms Russo
alluded to this when announcing their resignations this week. "It is now
time that the company acquires a personality of its own, independent from
its two predecessors," said Mr Tchuruk. Ms Russo said the company would
"benefit from new leadership aligned with a newly composed board."
Alcatel-Lucent plans to reduce the number of seats on its board and
appoint some new faces.
Things might run more smoothly with a few new directors who are neither
American nor French. The same goes for the new chief executive. One
name being touted is Ben Verwaayen, the former boss of BT. He is
respected in the industry, used to work at Lucent--and is Dutch.