Alcatel-Lucent strategies: What’s missing?

Alcatel-Lucent strategies announced by CEO Michel Combes focus on its existing strengths. There are several gaps in its strategies.

Its existing strong areas are mobile and fixed network. Alcatel-Lucent will add broadband access as the new thrust area.

Its existing focus area IP Networking will also get additional boost under the new CEO’s regime.

The success of Shift Plan of Alcatel-Lucent will depend on the success of its rivals in the game.

For instance, Nokia Siemens Networks is positioning itself as the mobile broadband specialist. There are other specialists as well in this space. ZTE and Huawei also want to win in mobile broadband space.

Ericsson is the market leader in the telecom equipment market. It does not have any cash crisis as like Nokia Siemens or Alcatel-Lucent.

Considering the current strategy, Alcatel-Lucent will not make any strong changes in the product portfolio. But select existing products will get some special attention.

Alcatel-Lucent considers that its LTE and FTTx businesses will get a boost from the new plan.

The new CEO’s strategy is good as both LTE and FTTx are growing businesses globally. But Alcatel-Lucent’s innovation in these products will pave way for customer stickiness. That’s why IP Networking and Ultra-Broadband Access will represent 85 percent of R&D investment in 2015.

The new strategy also means that Alcatel-Lucent needs to start eating into the market share of Huawei, ZTE, Ericsson and Nokia Siemens Networks in a significant way. Also, it needs to look at the future action plan of Nokia Siemens, when Nokia and Siemens decide to part ways.

Divestment of business

Alcatel-Lucent will sell non-core businesses to generate at least €1 billion. The new plan will be on for at least three years.

Growth Strategies

Alcatel-Lucent targets 15 percent growth in core networking segment to €7 billion in 2015 from €6.1billion in 2012.

The company wants to increase its operating margins in this segment from 2.4 percent in 2012 to more than 12.5 percent in 2015. Alcatel-Lucent is silent about its action plan on this aspect at present.

Cash Crisis at Alcatel-Lucent

The new CEO will focus on cash generation. It targets €1 billion in fixed cost savings and asset sales of more than €1 billion over 2013-2015. The Shift Plan also targets €2 billion in debt re-profiling and future debt reduction of €2 billion.

Alcatel-Lucent CEO Michel Combes said: “The Shift Plan is fundamentally an industrial plan that also addresses the Group’s operational and financial challenges by putting in place a strong and fully accountable leadership team with clear goals and the appropriate levers to deliver on these goals and on our commitments to all stakeholders.”

What’s missing?

Though Alcatel-Lucent CEO is talking about cloud technologies, the vendor does not provide any direction on its IT services / solutions business to telecom operators.

Many telecom equipment vendors are scoring high thanks to their IT contribution to telecoms. In Q4, Alcatel-Lucent’s revenues from software, services and solutions segment increased 5.5 percent to €1.38 billion.

Also, when will Alcatel-Lucent exit from its enterprise business? In Q4 of 2012, the company’s enterprise business revenues decreased 3.7 percent to €207 million. It’s not core business considering the new focus areas.

What about its managed services business? Several key operators in emerging telecom markets rely on managed services for future growth. Will Alcatel-Lucent exit from all managed services deal across the world. Recently, it exited from its joint venture with Bharti Airtel in India.

It will be a good strategy if Alcatel-Lucent exits from managed services business as it adds pressure on telecom equipment makers’ cash.

Alcatel-Lucent says it will give thumbs up to wireline broadband business. In fact, its wireline sales declined 7.4 percent to €388 million in Q4.

Alcatel-Lucent wants to focus on IP. But IP division revenues were €574 million, up 26.4 percent, in the fourth quarter. In 2012, the IP division sales increased 24.2 percent.

For Alcatel-Lucent, revenues from the wireless division increased 2.2 percent to €913 million.

Without any strong commitment — resources, funds, delivery capabilities — to its regions including India, Alcatel-Lucent’s success in executing the new strategy will be in-effective. Products alone will not bring business to this equipment maker. It needs to invest in R&D more and bring more value addition to its customers.

Baburajan K
[email protected]