On July 29, shareholders in telecommunications equipment giant Alcatel-Lucent (ALU) finally got what many have been demanding for months: the resignations of Chief Executive Patricia Russo and Chairman Serge Tchuruk. Russo, the former boss of Lucent Technologies before its 2006 merger with Alcatel, said she'll step down before the end of the year, while former Alcatel chief Tchuruk will leave Oct. 1. "The company will benefit from new leadership aligned with a newly composed board to bring a fresh and independent perspective," Russo said, in announcing the changes, which will include a downsizing of its 14-member board.
The telecom gear maker's latest quarterly results, also issued July 29, underscore just how tough a job the new leadership team will face. Alcatel-Lucent posted a $1.7 billion quarterly loss, including a $1.3 billion writedown on the North American wireless business inherited from Lucent. Quarterly revenues were down 5.2% year-on-year, to $6.5 billion, and the company warned that spreading economic malaise in Europe could further dampen sales. "We may see some weakness in spending" by fixed-line phone and broadband operators, traditionally a strong business for Alcatel-Lucent, Russo said in a conference call with journalists and analysts.
Alcatel-Lucent shares, which have sagged 60% since the merger, remained largely unchanged in July 29 trading after the news. The $27.5 billion company hasn't posted a profit since the merger.A Tricky Transatlantic Merger
What went wrong? Can it be fixed? And if so, who can fix it? Although Alcatel-Lucent characterized the departures of Russo and Tchuruk as the end of a "transitional phase," the move reflects deep disappointment in a merger that both promised would create a global powerhouse. "We were not very keen on the rationale behind the merger in the first place, and we've been disappointed with the progress management has made in executing it," says Richard Windsor, a London-based analyst with Nomura International.
Or, as French newspaper Le Monde succinctly put it in a front-page headline on July 29: "The resignation of Alcatel-Lucent's top executives signals their failure."
Like other makers of telecom equipment, Alcatel-Lucent has been clobbered by slowing economies—as well as by brutal price competition from newcomers such as China's Huawei Technologies. But it has been further handicapped by the difficulty of carrying out a tricky transatlantic merger (BusinessWeek, 6/18/08).Hinting at Board Changes
New management and a revamped board won't improve the overall market situation. But industry-watchers predict the company will bring in a CEO and new board members with few ties to either Alcatel or Lucent. That could help clear away the entrenched interests and Franco-American politicking that have weighed on the company. "It is clear something fundamental has to happen," says a top European telecommunications executive who knows Alcatel-Lucent well.
Although the company didn't give details, it hinted at forthcoming board changes in announcing that Henry Schacht, a former Lucent chairman and CEO, would immediately step down. Until now, the board has been carefully balanced between ex-Alcatel and ex-Lucent representatives.