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Alcatel Sees Equipment Market Share Gains Without Price Cuts

Alcatel-Lucent SA (ALU), the network-equipment maker that returned to a profit for the first time in two years last quarter, predicted it can win market share from rivals without slashing prices.

Alcatel-Lucent announced a research and development alliance with Intel Corp. (INTC) and said it will seek more partners. After cutting costs, selling assets and raising capital, Chief Executive Officer Michel Combes is boosting research to get new products out faster and to grab contracts from competitors.

“It’s not only about prices, it’s about giving clients the products they want,” Combes told reporters yesterday during the Mobile World Congress in Barcelona. “In this industry, having a head start is a bonus.”

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Alcatel-Lucent is up against tough competition and diverging strategies from rivals Ericsson AB, Nokia Oyj (NOK1V)’s networking unit and China’s Huawei Technologies Co. While Ericsson has focused on high-end contracts to boost profit margins, NSN last quarter signaled it was ready to sacrifice some profitability to grow sales faster.

After more than six years of restructuring, firings and asset sales failed to stem losses at the company, Combes last April took over to try to turn Alcatel around. The stock has more than tripled under his tenure, and Alcatel-Lucent last quarter reported net income of 134 million euros ($184 million) after about 3.5 billion euros in accumulated losses over the previous six quarters.

About Survival

“For months you heard me talk only about finance, because we couldn’t sell our clients anything if they had doubts about our survival -- that’s out of the way now,” Combes said. “We’re entirely focused on innovation.”

Alcatel-Lucent’s stock rose 1.3 percent to 3.19 euros at 2:33 p.m. in Paris.

Combes, who has vowed to cut costs by 1 billion euros by 2015 and sell another billion euros worth of assets, has to deliver on those promises as well as grow sales amid tough competition. The CEO in July unveiled a research partnership with Qualcomm Inc. (QCOM) to develop miniature wireless antennas and said the American company will buy a minority stake in Alcatel.

Alcatel today said it will invest alongside chipmaker Intel on R&D in areas including data storage and security. The partnership, which doesn’t include Intel buying a stake in Alcatel, will involve an investment of “a few hundred million” euros from each partner, Combes said.

The former Vodafone Group Plc executive said that delivering the right product, respecting the promised deadline, and making sure the product works once it’s installed will help Alcatel gain ground.

“Our industry has room for improvement on that front,” Combes said. “We don’t need to have the lowest prices -- I want to regain market share without breaking the industry.”

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

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

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