Alcatel-Lucent's strategy change shows just how fast market dynamics have changed in a market once dominated by the large tier-1 telecommunication providers that are its customers, but increasingly under siege by Internet content providers, and by NEPs based in the west that have been out-competed by Chinese vendors, most notably Huawei, and by specialists.
The move will allow Alcatel-Lucent to focus on cloud and large-scale internet providers that are generating a growing portion of bandwidth demand.
From a network infrastructure perspective, the plan will consolidate Alca-Lu's research and development on high growth areas. However, exiting from legacy technologies markets is likely to prove to be difficult and finding a buyer for its Submarine Network Solutions division is likely to face regulatory hurdles.
Ovum's quarterly market share research shows Alcatel-Lucent's IP and WDM products have performed pretty well for the company but rapidly declining revenues in SDH/SONET and DCS have led to lower margins and declining market share.
Alcatel-Lucent is the third-ranked vendor in the switching and routing market with $2.1 billion (€1.5 billion) in revenues over the last four quarters, which was up 2.3% year-over-year. Over the same time frame the company's revenues in broadband access fell 2% to just over $1 billion.
The overall broadband access market is decline and much of the current growth is in China. Alcatel-Lucent's optical networking equipment revenues dipped 28% over the last year despite strong 15% growth in converged packet optical (CPO) equipment and may pose the biggest challenge for the company.
Given the extent of the installed base of legacy products and the relevant customers, accelerating an exit could prove difficult. Alcatel-Lucent faced a similar dilemma when it rationalized its products back in 2006 after the merger however customer protests made the company reverse its decision.
Ron Kline is principal network infrastructure analyst at Ovum. For more information visit www.ovum.com