Alcatel-Lucent reveals radical strategy shift

Telecom equipment maker Alcatel-Lucent announced a radical new strategy on Wednesday to climb out of years of crisis with cost cutting, asset sales and a restructuring of debt. The group is to specialise in supplying the booming market for Internet infrastructure and technology for cloud computing. The group has a new chief executive, Michel Combes, who is behind the new programme called Shift 2013-2015. He has set a target of increasing the operating margin by five times to 12.5 percent of sales in 2015. Combes said in a statement: "Today we are taking comprehensive action to position Alcatel-Lucent at the heart of the digital ecosystem." The price of shares in the company zoomed upwards, gaining 5.96 percent to 1.49 euros in mid-morning trading when the overall market was showing a fall of 0.59 percent on the CAC 40 index. The programme is intended to cut fixed costs by 1.0 billion euros ($1.34 billion) and to raise another 1.0 billion euros with asset sales from 2013 to 2015. The company said that the programme "targets two billion euros in debt re-profiling over 2013-2015 and future debt reduction of two billion euros." The group, which has lurched from crisis to job cutting plans ever since it was formed of a merger between US firm Lucent and French Alcatel, said that it would focus on being more specialised in the products it makes. In recent years the group has struggled particularly against new competition, notably from China. After making headway in 2011, it fell back again in 2012 reporting a net loss of 1.3 billion euros owing to big asset write-downs. The company, which is a leading player in the business of providing telecom operators with the equipment they need for their infrastructure, reported last year that sales had fallen by 5.7 percent to 14.4 billion euros. The objective of the new programme is to "reposition Alcatel-Lucent from a telecommunications equipment generalist to an industrial specialist in IP (Internet) networking and ultra-broadband access (mobile and fixed) at the heart of next-generation network," the firm said in a statement. Highlighting the drive to specialise, the group said that Internet protocol Networking and ultra-broadband access would account for 85 percent of investment in research and development in 2015. Combes said that the new strategy was intended to be self-funding. "Over the next three years we are targeting euro one billion of fixed costs savings, and carefully defined and timed asset sales expected to generate at least an additional euro one billion." The group said that activity by what it calls its core networking segment would raise sales by more than 15 percent to more than 7.0 billion euros in 2015 from 6.1 billion euros in 2012. The target was to achieve an operating margin of more than 12.5 percent in 2015 from 2.4 percent in 2012. Alcatel-Lucent said that once it had demonstrated the success of the Shift programme, it would try to reduce its debt by another 2.0 billion euros through extra asset sales or by raising new capital.