International -- European Business: Italy
That's Some Corner Pirelli Is Turning (int'l edition)
Can the tiremaker transform itself into a high-tech hotshot?
You start out making tires and cables, and you end up as an Internet-era champion? Marco Tronchetti Provera sees no problem. As chief executive of Milan-based Pirelli, he wants to turn the 128-year-old manufacturer into a New Economy leader. On. Mar. 20, Tronchetti unveiled initiatives ranging from intelligent tires to a bid for a third-generation mobile-phone license. "I'm open to any solution that could add value," Tronchetti says. "In the next months, we will see where to focus."
Tronchetti's talking about more than a dash of e-cachet. The betting is that his Net-driven overhaul of $6.7 billion Pirelli will migrate the core business into fiber-optic components and network gear, where the company already has solid expertise. Many analysts think Tronchetti will eventually divest the tire business as new tech-driven units take off.
Tronchetti, 52, managed his family's fuel business before joining Pirelli in 1991. Now, he appears to be planning the kind of makeover that transformed Germany's Mannesmann from a stagnant 20th century engineering conglomerate into a fast-growing 21st century telecom giant.
Tronchetti already has two gems: a two-year-old unit that makes optical components for telecom networks and another that makes submarine optical components. Analysts say the two divisions--which Tronchetti hopes to float later this year--could be the hub of the reinvented Pirelli. The company has a long tradition of engineering expertise; in the early 1990s, its researchers pioneered some of the Internet's backbone equipment. "Pirelli has the technology to facilitate the next generation of Internet growth," says Nicholas Potter, analyst with SG Securities in London.ROBOTS AND NETS. It also has a vital new alliance with Cisco Systems Inc. In November, Pirelli sold Cisco its fiber-optics networking business for $2.1 billion. In turn, Cisco invested $100 million in Pirelli's components units, which now sell to Cisco. Cisco and Pirelli are also pooling patents via a joint company.
Traditional businesses are getting a jolt, too. In July, Pirelli will unveil its first robot-run tire plant, which will cut production costs by 15%. Tronchetti wants a third of production in these plants by 2004. Pirelli also intends to incorporate sensors to make tires part of a car's intelligent systems.
Tronchetti gets high marks for a decade of difficult restructuring. Net profit grew 10% last year, to $314 million, on an 18% rise in revenues. Tires now account for only 40% of revenues, and that's declining. Pirelli is already the global leader in energy cables. And the fastest growth will be in the telecommunications divisions. The optical components maker is growing by 60% annually.
Impatient with the pace of change, Tronchetti is turning management and R&D structures inside out. "It's a way to destroy bureaucracy," he says. His drive for e-Pirelli has only just begun.By Gail Edmondson in Milan