For the second time this year, Lucent Technologies Inc. warned of lower sales prior to releasing quarterly results. The company said it expects to post third-quarter earnings of $2.04 billion, compared with $2.04 billion last quarter and $2.34 billion in the year-ago quarter.
Pat Russo, chairman and chief executive officer of Lucent, blamed the company’s year-over-year earnings decline primarily on delays in spending on wireless network gear in North America due to consolidation among operators. Russo also cited decreased revenues in China as part of Lucent’s revenue shortfall.
However, Russo added that the consolidation of North American carriers “will lead to opportunities as service providers look to us to help them integrate their large, complex networks.” She said that Lucent’s customers are beginning to move toward the next phase of mobile high-speed data, pointing to Lucent’s CDMA2000 1x EV-DO Revision A contracts with Verizon Wireless and Telecom New Zealand.
Frank D’Amelio, Lucent’s chief operating officer, predicted that the company’s fourth-quarter results would be significantly better based on increased EV-DO Rev. A and HSDPA sales. He went as far as saying, “We expect that mobility deployments in North America will enable us to make the fourth quarter our highest quarterly revenue period for fiscal year 2006 by a significant margin.”
However, not everyone shares that view. Telecom analyst Albert Lin of American Technology Research commented, “We don’t expect a strong or impressive fourth quarter from Lucent. Price pressures are still a problem because there are still too many suppliers crowding the marketplace.”
Lin also explained that in his view carriers won’t rapidly increase spending on HSDPA and EV-DO Rev. A, as Lucent said it expects. Rather, Lin said, “Carriers will achieve their accelerated coverage goals without spending as much as equipment providers had hoped.” Wall Street was unnerved by Lucent’s revenue warning, as Alcatel’s shares traded down 65 cents at $11.65 per share and Lucent’s stock traded at $2.22, down 12 cents per share during mid-day trading last Tuesday. Lucent’s announcement was made late last Monday, after the financial markets had closed.
Lucent also said its merger plans with Alcatel are on track to close by the end of the year. Lucent’s Pat Russo already has been named CEO of the combined company, leaving Alcatel’s CEO Serge Tchuruk with a non-executive chairman position. But as the two companies defined the organization of the merged company and doled out leadership appointments, it’s clear that Alcatel’s crew will assume a majority of the top spots once the deal is complete.
Furthermore, Lin said he doesn’t expect Russo to hang on to the CEO post for too long after the merger, citing the board’s likely desire to bring in fresh views from an outsider if the company doesn’t realize its expected post-merger synergies.
Carrier biz
The combined company’s new Carrier Business Groups will be headed by Alcatel’s Etienne Fouques, currently president of Alcatel Europe & South. As senior executive vice president of the group, Fouques will oversee three teams:
- Wireless, to be headed by Lucent’s Mary Chan, currently president of Global Wireless Research and Development for Lucent’s Mobility Solutions Group
- Wireline, to be headed by Michel Rahier, Alcatel’s president of Fixed Communications Activities.
- Convergence, to be headed by Marc Rouanne, Alcatel’s president of Mobile Communications Activities.
The Enterprise Business Group will be headed by Alcatel’s Hubert de Pesquidoux, currently president of Alcatel North America. The Service Business Group will be headed by Lucent’s John Meyer, currently president of Global Sales and Services.
Worldwide
coverage
The company will have four geographic regions:
- Europe and South: headed by Alcatel’s Olivier Picard, currently president of Alcatel in France, Africa, the Middle East and South Asia. The region includes France, Italy, Spain and other Southern European countries, as well as Africa, the Middle East, India and Latin America.
- North America: headed by Lucent’s Cindy Christy, currently president of the Network Solutions Group. The region includes the United States, Canada and the Caribbean.
- Asia-Pacific: headed by Alcatel’s Frederic Rose, currently president of Alcatel Asia-Pacific. The region includes China, Northeast Asia, Southeast Asia and Australia.
Management group
Lucent also disclosed that Russo will lead a management committee made up of:
- Alcatel’s Fouques, who will serve as senior executive vice president of Carrier Business Groups.
- Lucent’s D’Amelio, who will serve as senior executive vice president of integration and chief administrative officer.
- Alcatel’s chief financial officer, Jean-Pascal Beaufret.
- Alcatel’s Claire Pedini, currently senior vice president of Human Resources and Communications.
Missing from the committee’s lineup is Alcatel’s president and chief operating officer, Mike Quigley, who the companies said has “decided for personal reasons to assume a different role for the combined company” as president of Science Technology and Strategy.
In early June, Lucent and Alcatel were notified that they had received regulatory approval from federal antitrust authorities for the deal.
The acquisition still must win various approvals in the United States and abroad, and also get the go-ahead from the shareholders of the two companies. Alcatel has set the vote for its shareholders’ meeting in September.
Alcatel shareholders will own about 60 percent of the company once the deal is completed, and Lucent shareholders will hold the other 40 percent.
Alcatel’s integration team leader, Christian Reinaudo, said the companies still expect to save about $1.7 billion of annual pre-tax cost synergies within three years, with 70 percent of these savings reached in the first two years after the closing of the deal. But the savings add up to bad news for some 9,000 employees, which Lucent’s integration team leader Janet Davidson said have been identified as part of a combined worldwide workforce reduction.
ATR’s Lin said layoffs are expected in areas that overlap between the two companies, such as sales and product support positions. Most such jobs are based in the United States.
Other key areas likely to be targeted for cuts are product manufacturing and, to a lesser degree, research and development, Lin said.
