| Alcatel-Lucent`s Russo, Tchuruk to quit; loss widens | |
| Bloomberg / Paris July 30, 2008, 5:55 IST | |
Alcatel-Lucent SA, the world's largest supplier of fixed-line phone networks, said Chief Executive Officer Patricia Russo and Chairman Serge Tchuruk quit after the sixth straight quarterly loss.
Alcatel-Lucent rallied as much as 6 per cent in Paris trading after the announcement. The net loss widened to 1.1 billion euros ($1.7 billion), or 49 cents a share, from 586 million euros, or 26 cents, a year earlier, the Paris-based company said in a statement today.
Russo and Tchuruk were the architects of Alcatel SA's November 2006 purchase of Lucent Technologies Inc, creating a company that has never earned a profit, shed 62 per cent of its market value and is eliminating 16,500 jobs. Russo, 56, hasn't said when she expects the losses to end. She will step down by the end of the year, while Tchuruk, 70, will leave Oct 1.
“We've waited for these departures for a long time,” said Frederic Hamm, who helps manage 150 million euros at Agilis Gestion in Paris and doesn't own Alcatel-Lucent shares. “Every earnings report there was a new profit warning.”
Analysts predicted a net loss of 135 million euros, the median of eight estimates compiled by Bloomberg News. The second-quarter loss included a writedown of 810 million euros for the unit that supplies networks based on code division multiple access, or CDMA, a wireless technology used by Verizon Communications Inc. and China Unicom Ltd.
‘Disaster’: Alcatel-Lucent shares rose 2 cents, or 0.4 per cent, to 3.85 euros as of 2 pm in Paris. Before today, the stock had fallen 23 per cent this year, while Stockholm-based rival Ericsson AB lost 14 per cent. About 14.5 billion euros of Alcatel-Lucent's market value had been wiped out since the merger.
“In the past quarters, Alcatel-Lucent has disappointed, missed forecasts and underperformed,” said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori Sgr in Milan, including Alcatel-Lucent shares. “At this point, the resignations were inevitable. It's a disaster. Now someone must rescue what's left.”
Paris-based Alcatel and Murray Hill, New Jersey-based Lucent, unable to revive sales after the technology bubble burst in 2000, combined in 2006 to fight competition from China's Huawei Technologies Co and Ericsson.
Russo and Tchuruk said at the time the company would benefit from demand for new networks, while saving 1.4 billion euros in costs annually.
Russo's Decision
The decision to leave was made by Russo and Tchuruk, spokeswoman Regine Coqueran said. Russo will be entitled to severance pay of twice her annual salary, or as much as 6 million euros based on this year's base pay of 1.2 million euros and maximum bonus of 1.8 million euros.
The CDMA business declined in the second quarter at a faster pace than anticipated in the quarter, Alcatel-Lucent said. CDMA sales are falling as operators invest in networks that use the global system for mobile communications, or GSM, or a newer technology called W-CDMA to provide third-generation mobile services.
Lucent was the market leader in CDMA when acquired by Alcatel. The combined company also had a fourth-quarter writedown of 2.52 billion euros last year, most of it to reduce the value of the CDMA business in the books.
Alcatel-Lucent and Ericsson, the world's biggest maker of wireless equipment, have both said the market for networks will stagnate this year.
Alcatel's Problems
“Alcatel's problems don't depend uniquely on Russo and Tchuruk,” said Matthieu Bordeaux-Groult, an analyst at Paris-based Richelieu Finance, which oversees $6.2 billion. “There's little visibility and a delicate merger to put into place. Russo and Tchuruk kept promising more for the future and then it never happened.”
Revenue dropped 5.2 per cent to 4.1 billion euros, in line with analyst estimates.
“We've seen a further weakening in the global macroeconomic environment,” Russo said on a conference call. “That's apparent to all of us.” Phone companies in North America may reduce spending as a result, and there are beginning to be signs that the economic slowdown is spreading to Europe, she said.
Today, Alcatel-Lucent reiterated its April forecast that 2008 sales will fall 2 per cent to 5 per cent because of the dollar's drop against the euro and possible spending delays by some clients. The dollar slipped 14 per cent against the euro in the year to June 30.
On July 22, Ericsson said second-quarter profit fell 70 per cent. The company reiterated that demand for networks will remain “flattish” this year. Ericsson is slashing 4,000 jobs.
Job Cuts
Alcatel-Lucent cut 6,700 jobs last year, reducing the number of employees to 77,400 at the end of December. The company raised its job-cut target in October in response to falling sales. Cash costs for restructuring will be 1.7 billion euros to 1.9 billion euros through the end of 2009, the company has said.
Last year's second-quarter loss included 250 million euros to amortize the Lucent purchase and a 298 million-euro writedown of the unit that provided wireless networks based on the third-generation W-CDMA technology.
Alcatel-Lucent revised its 2008 sales outlook in April to a decline from an increase, and Russo said the “big-deal issue” is the dollar, with the company getting more than half of its sales in dollars or related currencies.
Excluding accounting changes from the merger, the company reported an adjusted net loss of 222 million euros, compared with a shortfall of 336 million euros a year earlier. The loss on that basis had been seen at 5 million euros, based on the median estimate of 11 analyst estimates.
Operating Profit
The company reported a second-quarter adjusted operating profit of 93 million euros, beating the 70 million-euro median estimate of 14 analysts.
Alcatel-Lucent said it will begin looking for replacements for Russo and Tchuruk immediately. Henry Schacht, Russo's predecessor as Lucent CEO, will step down from the board.
“It is now time that the company acquires a personality of its own, independent from its two predecessors,” Tchuruk, the former Alcatel chief executive, said in a statement.
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