Alcatel-Lucent refocuses as IP & broadband access vendor

Alcatel-Lucent has followed the lead of Nokia Siemens Networks in repositioning itself as a specialist, with a focus on IP networking and fixed and mobile ultra-broadband access.

The plan focuses the group’s R&D spending on IP networking and ultra-broadband access with an increased emphasis on co-development with major customers and partners, while at the same time significantly reducing spend on legacy technologies.

As well as the sale of selected assets intended to generate at least €1bn over the period of the plan, Alcatel-Lucent is also looking at €1bn in targeted reductions in cost structure concentrated on actions to reduce sales, general and administrative expenses, the refocusing of R&D and improved operational efficiencies. If successful, there is also a plan to reprofile debt by €2bn in the future.

By 2015, IP Networking and Ultra-Broadband Access are set to represent 85 per cent of R&D investment, looking at what the company describes as a clearly differentiated management approach to the Core Networking segment businesses managed for growth, and the Access segment- including wireless and fixed access – and “other “ segment, managed for cash and focused on Ultra-Broadband Access.

The Core Networking segment is expected to generate more than a 15 per cent increase in revenues targeted to over €7bn in 2015 from €6.1bn in 2012, with more than a 12.5 per cent targeted operating margin in 2015, up from 2.4 per cent in 2012.

The Access and “other” segment is looking at over €250m in targeted segment operating cash flow in 2015, up from a loss of €115m in 2012.

Michel Combes, who was appointed CEO in April, said ”With The Shift Plan, which is designed to be self-funding, we are aligning realistic and deliverable ambitions with our core competencies. Over the next three years we are targeting € 1bn of fixed costs savings, and carefully defined and timed asset sales expected to generate at least an additional €1bn.”

Commenting on the announcement, Ron Kline, principal network infrastructure analyst, at Ovum, said that Alcatel-Lucent’s strategy change shows just how fast market dynamics have changed in a market once dominated by the large Tier-1 telecommunication providers that are its customers, but increasingly under siege by internet content providers, while vendors based in the West have been out-competed by Chinese players.

“From a Network Infrastructure perspective the plan will consolidate ALU’s R&D on high growth areas. However, exiting from legacy technologies markets is likely to prove to be difficult and finding a buyer for its Submarine Network Solutions division is likely to face regulatory hurdles.

“Ovum’s quarterly market share research shows Alcatel-Lucent’s IP and WDM products have performed pretty well for the company but rapidly declining revenues in SDH/SONET and DCS have led to lower margins and declining market share. Alcatel-Lucent is the third-ranked vendor in the switching and routing market with $2.1bn in revenues over the last four quarters up which was 2.3 per cent year-over-year. Over the same time frame the company’s revenues in broadband access fell two per cent to just over $1bn. The overall broadband access market is decline and much of the current growth is in China…Given the extent of the installed base of legacy products and the relevant customers, accelerating an exit could prove difficult. Alcatel-Lucent faced a similar dilemma when it rationalized its products back in 2006 after the merger however customer protests made the company reverse its decision.”