Alcatel-Lucent CEO to step down amid losses and declining revenue

The company reported a a!1.37 billion loss in the fourth quarter, on revenue of a!4.1 billion.

Alcatel-Lucent reported a fourth-quarter net loss of A!1.37 billion (US$1.81 billion), and at the same time announced it is hunting for a new CEO.

Current CEO Ben Verwaayen will step down as soon as a replacement is found, and will not seek re-election as a director, the company announced Thursday.

Chairman Philippe Camus said Verwaayen had "created one company out of two" following Alcatel's merger with Lucent Technologies, He "has recently seen through the completion of the stabilization of the company's balance sheet, enabling us to move forward with confidence," Camus added in a statement.

But in the fourth quarter, Alcatel-Lucent made a net loss of A!1.37 billion on revenue of A!4.1 billion, which was down 1.3 percent on a year earlier, it reported Thursday.

Things are perhaps not as bad as those figures suggest: The loss for the quarter included a goodwill impairment charge of A!894 million following the company's annual review of its assets, and a deferred tax charge of A!514 million.

On a positive note, fourth-quarter sales in North America rose 13.7 percent year-on-year, to A!1.6 billion.

However, competitors Ericsson and Nokia Siemens Networks benefitted to an even larger extent from strong sales in North America. Ericsson's revenue during the fourth quarter grew by 51 percent year-on-year, thanks to continued mobile broadband investments and demand for services, and Nokia Siemens' revenue grew by 45 percent.

"Alcatel-Lucent isn't taking as much of that particular action as it could and should," said Sylvain Fabre, research director at Gartner.

All three vendors struggled in Europe, with Alcatel-Lucent's revenue falling 13 percent to A!1.11 billion.

Alcatel-Lucent's fastest-growing business line was network applications software, up 52.9 percent year-on-year to A!240 million, followed by IP networking equipment, up 26.4 percent to A!574 million. Optical networking equipment sales, however, fell 22 percent to A!565 million, while enterprise networking continued its slow decline, down 3.7 percent to A!207 million.

Full-year revenue totaled A!14.45 billion, down 5.7 percent year on year, with a net loss of A!1.37 billion, compared to a A!1.1 billion net profit in 2011.

It was a difficult year, especially the first six months of it, Verwaayen said during a conference call. Misjudging the beginning of the year was the biggest mistake he made during his tenure as CEO, Verwaayen said.

The company announced a savings program, including plans to cut 5,000 jobs, after a net loss of A!254 million in the second quarter.

The company was taken off guard by the rapid move from CDMA to LTE in North America, a weakening GSM market in China, and the economic situation in Europe, Chief Financial Officer Paul Tufano said during the conference call.

Both Alcatel-Lucent and Nokia Siemens have struggled to compete after their respective mergers, but the latter has been more successful in turning around its fortunes, according to Fabre.

For example, Nokia Siemens passed Alcatel-Lucent to become the number two LTE vendor during the third quarter when measuring radio access network revenue, according to Dell'Oro Group. Huawei and Alcatel-Lucent shared the third spot, and Ericsson was on top, it said.

Nokia Siemens has made major cuts, shedding a number of business units to just focus on mobile broadband.

"Alcatel-Lucent hasn't gone through that process. It has instead cut bit by bit, so it doesn't hurt as much. It now has to make some drastic changes," Fabre said.

But Alcatel-Lucent is now planning to sell some of its units in the next 18 to 24 months for between A!1 billion and A!1.5 billion.

Verwaayen cutting his losses and leaving is not good news for the company, according to Fabre. It is now going to have to start every discussion with some damage control, he said.

Copyright © 2013 IDG Communications, Inc.

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