Alcatel Chief Seeks Fast Proof He Can Break Restructuring Curse

There’s one thing Alcatel-Lucent SA’s new Chief Executive Officer Michel Combes knows he doesn’t have on his side -- time.

Combes has promised Alcatel-Lucent will have positive free cash flow and be more tightly focused on its most remunerative businesses once his three-year turnaround plan, unveiled this week to analysts in Paris, is fully executed.

The CEO, who started on the job April 1, is working to achieve some quick results in the meantime to erase his predecessors’ seven-year-history of failed restructuring and prove to investors that cutting costs and selling assets will finally stem losses at the network equipment vendor.

“The company has reached a moment of truth. We don’t have much time,” Combes said in an interview yesterday at Bell Labs France, Alcatel-Lucent’s research facilities in Villarceaux, near Paris. “It’s a matter of survival.”

With negotiations on job cuts and debt likely to take time, the 51-year-old Frenchman is focusing now on where he can achieve quick results, shifting research budgets from declining legacy products to ultra-high-speed Internet technologies.

Bell Labs France’s 162,000 square feet of research facilities will be bulked up to become the company’s main European innovation hub as part of the shift, Combes said. With 5,000 researchers on site, the Villarceaux lab is already among Alcatel-Lucent’s biggest -- along with the Nobel-prize winning Bell Labs facility in Murray Hill, New Jersey -- and has helped develop technologies from miniature antennas for wireless networks to submarine cables.

Innovation Roots

“I want to rebuild this company from its roots, from where it started -- France, Bell Labs, and innovation,” Combes said. A research unit dedicated to filing patents that can be licensed or sold will also be created, he said.

By upgrading the French facility and investing more into it, Alcatel-Lucent is hoping to attract researchers there, as well as convince clients to order its equipment by involving them more in the development process, Combes said. The company unveiled a contract pairing it with France Telecom SA for a miniature antenna and fiber product development yesterday during an open-house day at the research site.

Plans to sell 1 billion euros ($1.3 billion) of assets and cut costs by another 1 billion euros, detailed on June 19 by Combes, caused the company’s shares to rise as much as 7.4 percent that day. Shares were down 1.6 percent at 10:10 a.m. in Paris today, to 1.47 euros, more than double what the stock was worth when it hit a 23-year low in October.

Debt Renegotiation

The former Vodafone Group Plc executive also wants to renegotiate part of the company’s debt with lenders to bring down the cost of borrowing, he said. Combes will attempt to waive the patent pledge that predecessor Ben Verwaayen made to obtain a 2 billion-euro loan deal in January.

“I will try and renegotiate some of the conditions of our debt,” Combes said. “I think lenders will find it difficult to give up the asset-backing they have obtained. We may have a better chance at reducing the cost of debt.”

The CEO will also meet in the coming weeks with unions to discuss the job impact of his restructuring plan. He forecast workforce “adjustments” will have to be made at the company, which has 72,000 employees worldwide, and said he is planning departures, staff reallocations and hiring some people with skills the company doesn’t yet have. Combes declined to detail the effect on jobs before meeting unions.

In France, where the company has about 9,500 workers out of 72,000 worldwide, he may face tough negotiations, especially given President Francois Hollande’s Socialist government’s tough stand to limit firings.

“What Alcatel-Lucent has to do, it’s like driving a car while both the wheels and the engine are being changed,” Combes said. “The challenge is staying on the road, but everyone at the company, my collaborators, they understand we have to do this.”

Before it's here, it's on the Bloomberg Terminal.