Alcatel-Lucent shows revival after new strategies and job cuts

Alcatel-Lucent CEO Michel Combes on Thursday indicated that the company is on a revival path after started executing its new strategies and job cut.

During an analyst call, Alcatel-Lucent CEO said its main achievements were major telecom customer wins including Sprint, Telefonica, China Mobile, China Telecom and Verizon and market shares in key targeted areas.

Q4 and 2013 marked a significant turnaround in profitability. Its adjusted operating income moved up massively by more than €0.5 billion between 2012 and 2013, bringing margin from minus 1.8 percent to plus 2 percent of revenues.

Michael Soper, Networking & Mobility Analyst, TBR, said that Alcatel-Lucent’s 4Q13 results indicate the company is executing the Shift Plan quicker than expected.

The company, in a bid to become profitable, reduced around 12,000 jobs. There are plans to eliminate more to save costs and improve efficiency.

While the tenets of the Shift Plan helped Alcatel-Lucent to improved profitability in 4Q13, achieving consistent results in 1H14, where the positive impacts of fourth quarter seasonality will not inflate results, will be a key indicator of success for the ultimate success of this plan.

As per the 2015 Shift Plan strategy, Alcatel-Lucent has repositioned as a specialist in IP networking, IP Routing, WDM, cloud and ultra-broadband, namely fiber and vectoring for fixed and LTE.

Alcatel-Lucent and Qualcomm will deliver the first multi-standards product with Wi-Fi in the next coming months. This is to ensure strong products in the domain of small cells.

Alcatel-Lucent equipment

Alcatel-Lucent R&D

Overall R&D effort of Alcatel-Lucent was maintained at roughly €2.3 billion in 2013, but is being refocused on IP networking and ultra-broadband technologies. While legacy R&D spending represented 35 percent of total R&D spending in 2012, ratio decreased to 28 percent in 2013, 1/3 through target of 15 percent by 2015.

On small cells, more and more operators are engaged in trials that are expected to turn into rollout within a 2- to 3-year time frame as all those solutions have to be industrialized. LTE and small cell technologies are representing more than 60 percent of its R&D spending in Wireless in 2013.

Alcatel-Lucent achievements

Thanks to large LTE rollouts. Alcatel-Lucent has achieved #2 position in edge routing and the leading position in mobile backhaul.

U.S. and Chinese operators selected Alcatel-Lucent for their evolved packet core. “We started 2013 with 6 wins in XRS core routing and ended the year with 20 wins. This is a solid basis that paves the way for future growth,” Combes added.

Alcatel-Lucent has shipped more 100-gig cards in 2013 than in 2010, 2011 and 2012 in aggregate. American telecom service provider Verizon is one of its main clients.

Telecom market trends

Alcatel-Lucent considers that two major transformations that are driving market trends within the industry. One, network and cloud infrastructure are concretely intersecting. This is done thanks to the carrier-grade IP Routing and this is SDM.

Simultaneously, the cloud is also inviting itself in the network, these main network functions being virtualized and ported on servers in the cloud. This is NFV. The second transformation is the emergence of ultra-broadband access due to the rush for bandwidth and the proliferation of devices of any kind, from smartphone to tablets to connected device.

The IP and WDM technologies are already recognized and deployed by cable operators. They are now extended to technology-centric enterprise like transport, utilities, governments, as they need the same high reliability and quality. With the cloud shift, the IP/MPLS technologies will able to penetrate the data centers and address fast-growing web scale and hosting companies.

Cable providers are already adopting PON. “We also see increasing government initiatives, either in FTTx, wireless or with public safety that will reshape the broadband market in many countries,” said Combes.

Growth plans in 2014

Alcatel-Lucent will leverage its position in edge routing and further expansion in core routing, EPC and data centers.

The telecom vendor expects the IP division to benefit from both terrestrial and Submarine positive trends. Capacity requirements will continue to drive upgrades in terrestrial optical networks.

In Wireless Access, momentum from LTE roll outs will continue, driven by China now entering phase two roll outs. North America will remain solid and new opportunities to emerge in EMEA.

2014 should also be a significant year for small cells where early adopters across the globe will begin to deploy in scale and additional technology adoption by fast followers.

In Fixed Access, the drivers of 2013 should continue to play. The race for more broadband will carry on, driving demand for vectoring and fiber.

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