Alcatel-Lucent will continue to grow margins under the Shift Plan, while buoying revenue through LTE rollouts in China.
Alcatel-Lucent continued to improve profitability under the Shift Plan in Q2 2014. With both gross and operating margins rising year-to-year for the fourth consecutive quarter, the Shift Plan restructuring initiative is positioning the company to achieve consistent operating margins of 4 percent-5 percent once restructuring is completed at the end of 2015.
Margin growth is taking place despite the negative impact of LTE rollouts in China, where market dynamics and competitive pressures lower infrastructure prices.
Revenue from LTE contracts in China buoyed Alcatel-Lucent’s total revenue in Q2 2014 as China Mobile and China Telecom continued rolling out LTE coverage. Total revenue decreased 4.7 percent primarily due to sharply declining sales in the Managed Services segment, which the company deemphasized as part of restructuring. Alcatel-Lucent will benefit from LTE sales growth in China throughout 2014 and into 2015, pushing year-to-year revenue growth into the low single-digits in H2 2014.
Alcatel-Lucent is revamping its OSS portfolio to embrace NFV and stabilize IP Platforms.
Alcatel-Lucent unveiled its new OSS portfolio in June, aiming to capitalize on the imminent shift to virtualized OSS functions. Alcatel-Lucent’s Motive Dynamic Operations portfolio, which will be commercially available later in H2 2014, aims to provide a route to network functions virtualization (NFV) of OSS, including service fulfillment and service assurance. Alcatel-Lucent has 300 OSS customers worldwide.
Motive Dynamic Operations will help Alcatel-Lucent bring stability and restart revenue growth in the IP Platforms segment. IP Platforms’ revenues typically swing wildly quarter-to-quarter as the company fleshes out its portfolio.
In Q2 2014, IP Platforms revenue declined 22.3 percent year-to-year. Motive, a software company Alcatel-Lucent acquired in 2008, is the brand around which Alcatel-Lucent has built its telecom software business. The company has worked to increase awareness around its Motive offerings for the past two years, with varying degrees of success. Offerings include Motive Big Network Analytics and Motive Customer Experience Solutions.
Alcatel-Lucent is taking a varied approach to divestments, including forging a co-development agreement in network security.
Alcatel-Lucent has ramped up its divestment activity in 2014 by shedding the LGS Innovations business and managing the divestment of 80 percent of Alcatel-Lucent Enterprise. The company also began exclusive negotiations with Thales, a cybersecurity vendor, to divest its cybersecurity and communications security business.
The structure of the transaction would see Alcatel-Lucent continue developing IP and access infrastructure security features, while going to market with the combined end-to-end cybersecurity portfolio from Thales. The combined portfolio will leverage Thales’ knowledge of cyber-defense and Alcatel-Lucent’s network expertise.
While the agreement has not been finalized, the two sides will agree to a deal in H2 2014. When the Shift Plan began, Alcatel-Lucent touted network security as an area where the company would seek co-development partnerships, but this potential agreement would take it a step further.
As operators increasingly focus on network security, Alcatel-Lucent’s ability to bid on contracts with the cybersecurity backing of an industry leader such as Thales will help the telecom vendor win deals.
Michael Soper, telecom analyst, Technology Business Research
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