Alcatel-Lucent CEO Verwaayen to step down amid turnaround struggles

Vendor posts $1.85B loss in Q4
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Alcatel-Lucent (NASDAQ: ALU) CEO Ben Verwaayen will step down from the struggling network equipment vendor. The news essentially puts a period on Verwaayen's attempts to turn around Alcatel-Lucent in the highly competitive network infrastructure market.

CEO Ben Verwaayen

Verwaayen

The company said Verwaayen will not seek re-election as a board member but will remain in palace as CEO as the board conducts a search for internal and external candidates to replace him. Verwaayen has led the company since late 2008. Verwaayen's exit coincided with the announcement of the company's fourth-quarter results, in which it posted a net loss of $1.85 billion.

"After five years in the business, you have to reflect," Verwaayen said during a conference call, according to Bloomberg. "The task ahead is focused on execution, execution, execution. Maybe that's not my natural strength, and maybe it's good for the company to get a fresh perspective."

"Leadership has always a sell-by date. Leadership has to adjust to new circumstances," Verwaayen added, according to the Wall Street Journal.

Since the 2006 merger of Alcatel and Lucent, the company has built up about $13.4 billion in net losses, while its cash reserve has diminished by an average of $941 million a year, according to Bloomberg. Since Verwaayen took over as CEO the company has posted a 15 percent decline in revenue, according to the Journal.

Citing unnamed sources, the Journal reported that some members of the company's board were frustrated with the pace of the company's turnaround, but another source said the decision on Verwaayen's departure was mutual and that Verwaayen had managed to stabilize the company. Verwaayen instituted a cost-cutting program to save $1.68 billion, with around 5,500 job cuts.

However, over the past several years Ericsson (NASDAQ:ERIC) has cemented its lead in the infrastructure market, while Huawei and Nokia Siemens Networks have come on strong. Alcatel-Lucent has a strong position in the North American market, but it has lagged its competitors in terms of global market share.

During the fourth quarter Alcatel-Lucent reported a net loss of $1.85 billion. The loss was magnified by a $332 million restructuring charge and a $1.2 billion impairment charge related to the declining value of its units making wireless network and optical-network equipment. The loss compares to a $1.1 billion profit in the year-ago period when the company's bottom line was aided by a gain on deferred tax assets in the United States. On Jan. 30 the company formally secured a $2.1 billion loan from investment banks amid continuing efforts to sell assets and cut costs.

Total revenue for the quarter clocked in at $5.5 billion, down 1.3 percent year-over-year. The company said its IP business continued to grow, posting a double-digit increase and its highest revenues level ever, while its wireless unit stabilized after four quarters of double-digit declines, driven by stronger spending from U.S. carriers. On the whole, Alcatel-Lucent's networks business saw revenue drop 2.2 percent from the year-ago period to $3.25 billion, but the vendor's wireless revenue grew to $1.22 billion, up 2.2 percent year-over-year.

In terms of asset sales in the future, the company is looking to maximize its returns. "This isn't a fire sale," CFO Paul Tufano told Bloomberg. "We're going for the best valuation," he said. Tufano declined to discuss the status of asset sale talks but said he sees an 18- to 24-month deadline for the sales.

For more:
- see this Verwaayen release
- see this earnings release
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Special Report: Wireless in the fourth quarter of 2012

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