Cracks appearing in Alca-Lu's continued optimism

When Ben Verwaayen became CEO of Alcatel-Lucent Alca-Lu in 2008 he promised to turn around the unprofitable company in three years. However, financial analysts are beginning to question his persistent claims that this would be achieved following the announcement that its Q1 losses would be more than double what analysts had estimated. (€515 million instead of the anticipated €244.4 million)

The publication of these results drove down the share price by 6.5 per cent, meaning that, since Verwaayen was appointed in September 2008, shares have lost almost half their value, eroding market value by €4.8 billion.

Since the creation of Alca-Lu in 2006, the company has now racked up deficits of nearly €10 billion, and has established an unenviable track--record losing money in every quarter except two since the firms merged.

Despite this, Verwaayen maintains that the "aspiration to be a normal company at the end of 2011 was absolutely still there." But, perhaps given the current performance problems underway within Ericsson and NSN, this depends on your definition of a normal, non-Chinese infrastructure company.

The one glimmer of hope raised within the analyst community was that the likes of Huawei and ZTE, instead of mimicking the technology developed by the more established infrastructure players, will need to invest more heavily in R&D to remain competitive as the wireless industry evolves.

Alca-Lu might also benefit more than other European equipment suppliers from the US network upgrades because of its long-standing presence in North America through Lucent.

Perhaps Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, summed up the general feeling that Alca-Lu faced a severe uphill struggle to meet its stated target of reaching an adjusted operating margin between one and five per cent this year.

If it does, then Verwaayen will have performed a near miracle, if not then stakeholders will likely force management changes.-Paul

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