Alcatel Chief Looks to Ericsson for Lessons in Turnaround

Alcatel-Lucent SA (ALU) Chief Executive Officer Michel Combes, taking the reins after his predecessor’s turnaround plan failed, told shareholders today keeping the pace of cash consumption under control and focusing on fewer businesses are among the network-equipment maker’s priorities.

In his first address to investors, Combes said Alcatel-Lucent could emulate Ericsson AB, which a decade ago focused on mobile equipment and reorganized its workforce to grow the Swedish company into the world’s largest vendor of wireless networks. Alcatel-Lucent will use divestments and partnerships to help stem losses, said the 51-year-old Frenchman, who took over from Ben Verwaayen last month.

“It is possible to turn Alcatel around,” Combes said in front of about 250 shareholders in a conference room near the Champs-Elysees in Paris. “Ericsson was out of breath 10 years ago and they did it. We could follow a similar trajectory.”

Ericsson cut more than 50,000 jobs -- more than half its workforce -- between the end of 2000 and early 2004 to end years of losses caused by slowing spending by debt-laden phone carriers and emerging competition from Asian rivals.

The company regained its investment-grade credit rating in 2005 and has now had nine straight profitable years amid recovering sales. Its stock has risen about fivefold since its 2002 depths.

Loan Pact

Alcatel-Lucent shares jumped 9.3 percent at 2:18 p.m. in Paris for their biggest gain in a month. The Paris-based company this month reported its fourth straight quarterly loss as its cash pile shrank by half a billion euros. Moody’s Investors Service said it may cut the company’s debt rating further into junk unless it returns to profit and stops spending to much in the second half.

Alcatel-Lucent in January closed a 2 billion-euro ($2.6 billion) loan deal and in February named Combes as CEO, opening a new chapter in a quest to make the company profitable since it was created through the 2006 merger of Alcatel SA and Lucent Technologies.

“Alcatel-Lucent’s situation today is hardly sustainable in the long run,” Combes said, adding that he is putting final touches to a reorganization plan to be unveiled by mid-July. “Our company can’t stay a telecoms generalist. We need to evolve to become a multi-specialist.”

Alcatel-Lucent, along with Nokia Siemens Networks and Ericsson, have eliminated jobs to adapt their business models to aggressive price cuts by Asian vendors.

Huawei Technologies Co., China’s biggest maker of phone-network equipment, said this month it plans to hire 5,500 people in Europe over the next four to five years. In France, Alcatel-Lucent has about 9,500 workers, of a total of 72,000 worldwide.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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