The new Alcatel-Lucent will be leaner, meaner and focused on small cells and LTE, according to a plan presented on June 19 by Michel Combes, newly appointed CEO of the company. The three-year plan, known as the Shift Plan, will transform the company from a telecom equipment generalist into a specialist provider of mobile and fixed broadband access and core networking. Additionally, the manufacturer’s management structure will be reorganized into four main business lines: IP Routing & Transport, IP Platforms, and Wireless and Fixed Networks.
Combes replaced Ben Verwaayen, who left the company after it incurred a net annual loss of $1.8 billion, down from a net profit of $1.1 billion the previous year. It was the only one of the major wireless infrastructure companies that incurred a loss. As a matter of course, Alcatel-Lucent is shifting its assets and resources to high-profit areas.
“They need to create a balance between growth and margin,” Nick Marshall, ABI Research, told DAS Bulletin. “Rather than go after everything and try to have the most LTE contracts, they will be selective and only choose the ones they deem profitable.”
Alcatel-Lucent said its new focus on the fast-growing business segments of IP Networking, cloud technologies and broadband access will be delivered by a management team with full profit-and-loss and cash accountability.
“The ‘managed for cash’ businesses will include key wireless, fixed access and other businesses that will play an important role in the company’s medium and long-term development,” the company said in a press release.
Marshall gave high marks to Alcatel-Lucent’s effort to build on the success it experienced in small cells and LTE.
“I think it is the right thing to do. That is where the market is going,” he said. “They have done some really good work on the LightRadio, thanks to Bell Labs, over the last couple of years.”
Alcatel-Lucent intends to focus on FDD and TDD LTE overlay equipment by building on its footprint in North America, China and France. By focusing on these markets and leveraging selective opportunities for revenue in other markets, Alcatel-Lucent has in effect announced its exit from the 2G and probably also the 3G market. Marshall cautioned that Alcatel-Lucent’s pullback might damage its carrier relationships and open the door to its competitors.
“4G is still in its infancy,” he said. “There is still a large 3G market to be served until 2015, not only in the United States, France and China, but elsewhere. Europe is barely penetrated with LTE. I hope they exit gracefully because they may be giving market share to Huawei, NSN and Ericsson.”
According to the Shift Plan, Alcatel-Lucent will focus on its core networking segment (IP networking) and broadband mobile and fixed access networks, which will account for 85 percent of R&D spend in 2015. Investment will be emphasized in 4G LTE, vectoring and fiber-based access systems, while R&D spending on legacy technologies will be reduced to 15 percent. Additionally, there will be an increased emphasis on co-development with major customers and partners.
Concentrating on R&D is playing to Alcatel-Lucent’s strength. It is already ranked by ABI Research as the most innovative base station vendor with three best–in-class scores for innovation in the areas of R&D investment and commitment, small cell and HetNet development, and TCO innovation.
The Shift Plan promises $1.3 billion in fixed cost savings and asset sales of more than $1.3 billion in the next two years, as well as reducing future debt $2.3 billion.
Alcatel-Lucent’s new product and platform emphasis is expected to enable it to target a wider range of customers beyond its traditional base of large telecommunications operators.