March 6 (Bloomberg) -- Alcatel-Lucent, the Paris-based networking-equipment maker, is focusing on innovation and is no longer on a financial precipice, Chief Executive Officer Ben Verwaayen said.
The company, entering its fourth year under Verwaayen, has struggled with spending pullbacks by large telephone companies and increased competition from China-based rivals Huawei Technologies Co. and ZTE Corp.
Last year, Alcatel-Lucent posted a profit for the first time since it was formed in 2006 by the merger of Alcatel SA and Lucent Technologies. One target Verwaayen missed last year was the amount of cash held by the company.
“Our balance sheet wasn’t strong enough,” Verwaayen said yesterday in an interview at Bloomberg’s headquarters in New York. “We were a company on a cliff. We don’t want to be a company on a cliff,” he said, adding that “we expect at the end of 2012” to have bolstered the cash position.
Alcatel-Lucent rose as much as 2 percent to 1.81 euros in Paris trading today and was up 1.6 percent as of 9:20 a.m. while France’s benchmark CAC-40 index dropped 0.7 percent.
Last month, the company reported negative free cash flow of 458 million euros ($606 million) for 2011 and pushed back its goal of turning that metric positive until 2012. Last year’s sales declined 1.9 percent to 15.7 billion euros.
The company’s performance has been hard on investors, with the stock falling 54 percent over the past year before today. It also has affected Verwaayen, a former BT Group Plc CEO who took over in 2008. He waived his 2012 stock bonus for missing the target.
Alcatel-Lucent also said last month that it will expand profit margins, eliminate $660.9 million in costs this year and cut 1,800 positions in Europe. Verwaayen says he plans to reassign a large number of those workers somewhere else in the company and build on the company’s history of innovation and its worldwide customer base.
Alcatel-Lucent ended 2011 with an adjusted operating profit as a percentage of sales of about 3.9 percent, and Verwaayen expects to improve that in 2012.
“For our shareholders, we need to have a return,” Verwaayen said. He said the goal he’s working toward, though it’s not a forecast, is a 10 percent operating profit margin. “To dance with the best in the class, it has to be around 10 percent,” he said.
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