Back in the game

Alcatel-Lucent hosted its annual Tech Symposium in New Jersey in November, and the atmosphere was decidedly confident, be it on a low key basis. The company, which was facing deep financial distress just a couple of years ago appears to have turned the corner as it looks to change the gears of its ‘Shift Plan’ strategy and focus on innovating, transforming, and growing the company

Michel Combes was proud to report that as part of 2014’s Alcatel-Lucent Tech Symposium, the company had held its first investor day since 2006

Alcatel-Lucent CEO Michel Combes was proud to report that as part of 2014’s Alcatel-Lucent Tech Symposium, the company had held its first investor day since 2006. Given questions regarding the company’s standalone future, and the reporting of woeful operating results, it is obvious why Alcatel-Lucent opted to steer clear of the piercing eyes of investors and financial analysts until now.

The company’s fourth quarter results offer an insight as to why it has a new found confidence. Positive momentum is infectious, and Alcatel-Lucent can’t seem to help but detail its rising fortunes. The company reported a Q414 profit attributable to equity holders of €271 million (US$307 million), more than doubled from €134 million a year earlier, while revenue of €3.68 billion was down six per cent on a comparable basis.

Q4 revenue excluding Managed Services declined three per cent year-on-year. At constant currency, revenue excluding Managed Services increased two per cent year-on-year.

Combes commented that the company is “in a strong position to capitalise on profitable growth opportunities and will focus on operational excellence and quality of service.”

Alcatel-Lucent improved profitability in its Core Networking segment, increasing to €288 million from €258 million on revenue that increased one per cent to €1.8 billion.

For the full-year, Alcatel-Lucent reported a loss of €118 million, compared with €1.3 billion in 2013, on revenue of €13.18 billion, down three per cent.

These improved results are a glowing endorsement of Alcatel-Lucent’s ‘Shift Plan’, which it detailed in June 2013, which was aimed at refocusing the business, restructuring it, and refinancing Alcatel-Lucent.

“Within the refocus phase, we were looking to move from being a generalist to becoming a specialist in ultra-broadband, IP, and cloud,” explained Combes. The restructuring element of the strategy involved realising €950 million of savings in fixed costs, while refinancing was crucial as 20 months ago the company was in financial distress, it was almost bankrupt.”

Combes continued, “I am happy to announce that refinancing is complete. We have raised €5.5 billion to date in debt and equity, and in August (2014) we were able to report that we had no asset that was under any security.”

Given this progress to date, Combes was keen to point out that it is probably more important now than it has been in the past for Alcatel-Lucent to keep pushing forward and looking at opportunities for growth in the market. The company has not generated any cash since 2006 and Combes says one of the next significant markers for Alcatel-Lucent is for it to become cash positive by 2015, which would mark the achievement of the last stage in the ‘Shift Plan’.

Alcatel-Lucent already invests approximately €2.2 billion in R&D annually, which has led it to securing strong market positioning in the areas of core networking products, FTTx vectoring, and small cells

“We are back in the game; that is our message at the moment. There is a strong alignment between the products Alcatel-Lucent has and what the market is demanding,” asserted Combes. “The explosion of video and data traffic is an ongoing opportunity, and the company believes ‘the network is back’, having adopted the tagline, ‘Every success has its network’.”

Alcatel-Lucent has identified three major constraints in the market today, which it fortuitously also considers to be opportunities for the company. These are:

1. Limited connectivity

2. Increased complexity to manage networks

3. Unfulfilled commercialisation (monetisation)

Thus Combes described the second chapter of the ‘Shift Plan’ as being defined by Alcatel-Lucent’s ability to innovate, transform, and grow. From an innovation perspective, the company already invests approximately €2.2 billion in R&D annually, which has led it to securing strong market positioning in the areas of core networking products, FTTx vectoring, and small cells. Combes also considers the rebirth of Bell Labs, and the GSMA’s Network 2020 initiative as opportunities that can allow Alcatel-Lucent to further assert its technology leadership.

The GSMA’s Network 2020 programme is designed to help operators make IP communications work as a native service behind the ‘Green Button Promise’. Operators can offer a unique, rich IP-based communications proposition to their customers, which means providing Rich Communications Services (RCS) voice and messaging, video-based calling, and VoLTE calls – all with the same telecom grade experience historically linked only with voice services. The ‘Green Button Promise’ sums up this proposition, reflecting the previous experience of using a green button on a device to initiate a voice call.

It aims to address and navigate the complexities of progression to an all-IP communications network. The first phase of the programme focuses on two main areas – ensuring devices and networks can deliver a native experience and that VoLTE and RCS interoperable solutions are established.

Speed and orchestration are the drivers of Alcatel-Lucent’s innovation ambitions, and the success of its Nuage Networks business unit in the virtualisation space is something Combes would like to see replicated across the company. In fact, Alcatel-Lucent took the opportunity to announce the extension of Nuage Networks solutions beyond the data centre, detailing its Virtualized Network Services (VNS) offering, which is aimed at extending software-defined networking (SDN) to remote and branch locations, speeding up by 10 the time it takes to deploy new sites while reducing operation costs by more than 50 per cent.

“We have deep partnerships for instance with Qualcomm for small cells, and we followed this up with a partnership with Intel on virtualisation, and we recently announced a new partnership with Freescale,” Combes said, highlighting that Alcatel-Lucent is willing to collaborate in order to offer its customers a richer, deeper suite of services.

Nuage Network, founded and led by Sunil Khandekar, detailed its Virtualized Network Services (VNS) offering, which is aimed at extending software-defined networking (SDN) to remote and branch locations

With respect to transformation, Combes identified three internal cultural outlooks that would drive this initiative forward, and those were: Doing it the Alcatel-Lucent way; developing a cash culture; and transforming the company into a digitalisation software company.

“We have to behave more as a disruptor rather than an incumbent,” Combes said, before going on to describe the third-prong of the second phase of the ‘Shift Plan’, growth.

Combes is looking to diversify Alcatel-Lucent’s customer base, form new alliances, and drive Bells Labs’ consulting/transformation in search of growth and is upbeat about the prospects ahead.

“We are back in this game to win, not just to play,” Combes asserted. “We have a renewed brand positioning, new image and focus.”