- The Washington Times - Monday, August 4, 2008

— Not much has gone right in the two years since France’s Alcatel joined with its American counterpart, Lucent, to form a powerhouse in the telecommunications equipment business. Now the executives who made the deal happen have run out of time to fix the problems.

Alcatel-Lucent Chief Executive Patricia Russo, who had said two months ago that she understood shareholders’ disappointment, did last week what many shareholders had been demanding: She resigned, as did Chairman Serge Tchuruk, her co-architect in the 2006 merger of the French and American companies.

“The time is right,” Ms. Russo said in a conference call.

Ms. Russo finally succumbed to the failure of the $11.4 billion merger to live up to expectations. Alcatel-Lucent’s stock price has fallen more than 60 percent since the merger, the company has yet to post a profit, and already it has tried massive job cuts.

“Ms. Russo ran out of turnaround plans, and Alcatel-Lucent’s board ran out of patience,” said James Post, a management professor at Boston University.

At the company’s annual meeting in May, Ms. Russo - who had been running the AT&T spinoff Lucent before the deal - was greeted with jeers and whistles. Shareholders criticized her not only for the shares’ slide, but also for her demeanor, her inability to speak French and her salary.

In 2007, she was paid $2.8 million, including benefits. She will leave the company with a severance package worth as much as $9.4 million, company spokeswoman Regine Coqueran said.

Mr. Tchuruk, Alcatel’s longtime chairman and CEO before the merger saw him take on the nonexecutive chairman role, said that the resignations were aimed at giving Alcatel-Lucent “a personality of its own, independent from its two predecessors.”

“There’s been demand for change in management at Alcatel-Lucent for some time, and at last it’s being made,” said Julian Watson, senior analyst for telecoms at Global Insight in London.

Mr. Tchuruk will step down Oct. 1, and Ms. Russo will resign “no later than the end of the year,” the company said, adding that the search for replacements is to begin immediately.

When conceived, the Alcatel-Lucent merger was designed to boost profit margins through savings on expenses and research and development, while improving the joint company’s pricing power with telecommunications network operators, its largest customers. The idea was to create a critical mass to compete with the likes of China’s Huawei Technologies Co. and Ericsson AB of Sweden.

But because of intense competition in the industry, much of the savings Alcatel-Lucent has generated have been used on discounts to lure customers. As a result, “Alcatel-Lucent has posted six consecutive quarters of losses … while [competitors] have managed to recover,” Mr. Watson said.

Alcatel-Lucent reported a net loss of $1.73 billion in the second quarter, while revenue fell 5 percent to $6.5 billion. The company said sales will stagnate or decline slightly in the third quarter as well.

Alcatel-Lucent is in the middle of a painful restructuring that foresees 16,500 job cuts.

After 6,700 jobs were slashed in 2007 and a further 1,200 in the first quarter, Alcatel-Lucent axed 1,100 more positions in the second quarter, Chief Financial Officer Hubert de Pesquidoux said in a conference call. The company now employs around 75,000 people.

The cuts are part of a plan to save between $1.73 billion to $2.04 billion this year and next.

The restructuring is seen as necessary, considering that Alcatel-Lucent’s carrier division, by far its largest, has suffered as network operators in North America consolidate and rein in spending to adapt to the faltering economy.

But even with the departure of Mr. Tchuruk and Ms. Russo, and Alcatel-Lucent’s continued losses, the merger is not yet a complete write-off, Mr. Watson said.

“It’s not the definitive failure of the merger. In the long term, it can still be turned around,” Mr. Watson said, “provided they get the right people on board, with a very long experience in the telecoms industry.”



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