Alcatel-Lucent Dumps CEO, Chairman


July 29 2008

Alcatel-Lucent [ALU-N]ousted its chairman and chief executive on
Tuesday and lowered profit expectations yet again – further evidence
that Asian rivals, Ericsson and Nortel are taking market share.

The world’s No. 1 provider of fixed-line telecoms networks has lost
more than half of its market value since it started operating as
a combined group in Dec. 2006. Chief Executive Patricia Russo, who
took the reins after the merger, leaves this year with a payoff of
â~B¬6-million ($9.45-million U.S.).

Meanwhile, the group’s 70-year-old chairman Serge Tchuruk, architect
of the merger between France’s Alcatel and Lucent of the United States,
will leave on Oct. 1.

The complexity of the controversial deal combined with irreconcilable
corporate culture clashes and dire market conditions were partly to
blame for the group’s woes, analysts said.


The group took too long to select its combined technology portfolio,
spooking customers amid fierce competition, while management – which
lost key people after the merger – struggled to remain focused,
they said.

"We have felt that weak management is mostly to blame for these
shortcomings and we hope that new management can bring the company
back to greatness," said Nomura analyst Richard Windsor in London.

The group’s shares rose as much as 6 per cent, and were up 2.1 per
cent at 3.91 per cent by 1122 GMT. The stock has fallen 63 per cent
since January 2007.

Investors have been pushing hard for many months to get rid of
Ms. Russo and Mr. Tchuruk. In May shareholders publicly criticized
the pair and approved measures that made it easier to dump them.

"Now there is an opportunity for new management to come in and make
changes," said Bettina Tratz-Ryan, research VP at Gartner. "The
focus needs to go back where their stronghold is – into broadband
and creating value from it.

Alcatel-Lucent cut its forecast for third-quarter sales, saying it now
expected them to remain flat or decline against the previous three
months to June while investors were looking for growth of about 2.5
per cent.

"They are massively understating the market share they have lost,"
Nomura’s Mr. Windsor said. "We think that the company is losing share
to Nortel and to the Chinese."

Nokia Siemens, Ericsson and Alcatel-Lucent are the leading players
in the telecoms network market, but have been increasingly challenged
by Chinese vendors Huawei and ZTE.

With aggressive pricing, Huawei took the No. 4 spot in the global
telecom network gear market at start of the year, bypassing Nortel
Networks and Motorola.

Alcatel-Lucent also reported underlying April-June sales and profits
which came in slightly ahead of expectations, but reported a big net
loss for the quarter due to writedowns. The group said it expects
2008 revenues to fall "in the low to mid single-digit range."

"This leaves an awful lot of revenues to come in Q4 to meet the full
year guidance, raising the spectre of yet another warning in Q4 2008,"
Mr. Windsor said.

Ms. Russo jetted into her job in Paris filled with American corporate
convictions that flew in the face of French culture.

She promised shareholders she would learn to speak French but did
not have time to master the language.

Mr. Tchuruk, born in November 1937, is a former arms engineer with
Armenian parents in Marseilles who climbed the corporate ladder to
become head of oil group Total before joining Alcatel in 1996.

A tireless strategist, he engineered a restructuring of the sprawling
Alcatel empire into the core telecoms activities, a defence branch
that became part of Thales and the Alstom industrial engineering group.

His departure is likely to reopen speculation over the future of
Alcatel’s large stake in Thales, which Mr. Tchuruk had, according to
sources close to the matter, wanted to keep. Thales shares fell 3.2
per cent.

The merger with Lucent was meant to crown his career as it pulled
the equipment firm back to the front line of global competition with
Nortel, Nokia Siemens Networks and Ericsson.

"It is now time that the company acquires a personality of its own,
independent from its two predecessors," Mr. Tchuruk said in statement.

Alcatel-Lucent said both Mr. Tchuruk and Ms. Russo had decided
themselves to quit. It said the board would look for a new
non-executive chairman and CEO immediately.

"This is a public admission, if ever one was still needed, that
the merger was a failure," said Sal. Oppenheim analyst Niclas von

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