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Alcatel-Lucent Chief Resigns as Company Posts $1.85 Billion Loss for 2012 Alcatel-Lucent Chief Resigns as Company Posts Loss
(about 4 hours later)
PARIS — The chief executive of Alcatel-Lucent, Ben Verwaayen, is leaving the unprofitable French-U.S. telecommunications equipment maker after a failed four-year bid to return it to profit. PARIS — Alcatel-Lucent said Thursday that its chief executive, Ben Verwaayen, would step down as the company, a maker of telecommunications equipment, posted a big loss for the fourth quarter.
Mr. Verwaayen said in a statement Thursday that it was “clear to me that now is an appropriate moment” for Alcatel-Lucent to seek new leadership. Mr. Verwaayen, 60, was hired in September 2008 to succeed the former Lucent Technologies chief executive, Patricia Russo, who with Serge Tchuruk of Alcatel had helped engineer the $13.4 billion combination of the two companies in 2006.
The surprise departure comes as Alcatel-Lucent posted a loss of €1.37 billion, $1.85 billion, last year, compared to a €1.1 billion gain a year earlier. Upon taking over, Mr. Verwaayen, a blunt, irascible Dutchman, had promised to transform Alcatel-Lucent into a “normal” company that would pay a dividend by 2012. But he never managed to restore reliable profitability. The company has not paid a dividend since 2007.
No details on Mr. Verwaayen’s replacement were provided. He has agreed to stay on until a successor can be found. Alcatel-Lucent said it would look at candidates both internally and from outside the company. On Thursday, Alcatel-Lucent, based in Paris, reported a loss of €1.37 billion, or $1.8 billion, for the last three months of 2012, compared with a profit of €868 million profit a year earlier. Sales fell 1.3 percent in the period, to €4.1 billion.
Mr. Verwaayen, who is Dutch, joined Alcatel-Lucent in 2008 after the ouster of the previous management led by an American, Patricia Russo, who came from Lucent Technologies in the United States. Ms. Russo and Serge Tchuruk, a Frenchman who led Alcatel, had masterminded the $11.6 billion merger of the two companies. The combined entity has racked up many billions of euros in losses since its creation in 2006, something Mr. Verwaayen has spent four years trying to reverse. Eric Beaudet, an analyst at Natixis, a bank in Paris, said that Mr. Verwaayen had lost credibility among investors after promising a succession of restructuring plans that had failed to bring it to sustainable profit. In 2010, Alcatel-Lucent posted a net loss of €292 million. The next year, the company had a €1.1 billion net profit. For 2012, the company reported a full-year loss of €1.1 billion.
Alcatel-Lucent supplies telecommunications operators and corporations the technology for building global communications networks. It has suffered from repeated rounds of costly layoffs and restructuring, as well as intense competition from the likes of Ericsson of Sweden, Huawei of China and Nokia Siemens Networks, a Finnish-German joint venture. “With the C.E.O. having lost credibility, we believe that this move will be appreciated, even though a replacement has not yet been named,” Mr. Beaudet wrote in a note to investors. “We believe that the market should react positively to this announcement with Mr. Verwaayen having lost some of his credibility with the numerous successive restructuring plans.”
Shares of Alcatel-Lucent rose 6.8 percent in Paris trading to €1.38. Since Mr. Verwaayen’s appointment, the shares have lost more than half of their value.
Philippe Camus, the chairman of the Alcatel-Lucent board, announced the departure, saying that Mr. Verwaayen had decided not to seek re-election as chief executive at the company’s annual meeting this spring. Mr. Verwaayen will stay on until a successor is found, Mr. Camus said, adding that the board was reviewing internal and external candidates.
In a statement, Mr. Verwaayen said the company needed new leadership.
“Alcatel-Lucent has been an enormous part of my life,” Mr. Verwaayen said. “It was therefore a difficult decision to not seek a further term, but it was clear to me that now is an appropriate moment for the board to seek fresh leadership to take the company forward.”
Under his tenure, Alcatel-Lucent developed a unified set of network products, eliminating redundant French and American gear, and focused efforts around wireless broadband technologies as it fought larger rivals like Ericsson of Sweden and Huawei of China.
In an interview a few months after becoming chief executive, Mr. Verwaayen displayed a feisty, fighting spirit, rejecting the then-prevailing negative sentiment surrounding Alcatel-Lucent, which one analyst had likened to an “Amtrak-TGV train crash.”
Mr. Verwaayen drily replied that he was “very grateful for their concerns and their love and care for us, which is really very heartwarming.” He went on to say that he was “confident that you will find a company that is alive and kicking, a company that is a force.”
Alcatel-Lucent initially relied on sales to AT&T — a legacy of Lucent’s origins as Bell Labs, the AT&T research arm — and other U.S. telecommunications companies, as well as to French public entities such Thales, a government defense, aerospace and transport contractor. But it was unable to expand quickly enough beyond its base to keep pace with Ericsson and Huawei, which now dwarf Alcatel-Lucent in sales and profit.
“Mr. Verwaayen had done as much as he could with the assets he had,” said Martin Nilsson, an analyst at Handelsbanken in Stockholm. “But when he came in, things were pretty bad there, and a lot of ground had been lost.”
Lucent, Mr. Nilsson said, had been reduced to making “legacy” wireline products for AT&T and other American operators, a once-lucrative business whose profitability had diminished following deregulation of the U.S. telecommunications industry in the 1980’s.
Alcatel had a similar symbiotic relationship with the French government, supplying most of the core equipment and land lines to France Télécom, or to public entities like Thales.
But Mr. Verwaayen’s austerity cure, which he successfully applied as chief executive of the former British telecom monopoly BT from 2001 to 2008, has not brought the same results at Alcatel-Lucent.
Mr. Camus, the Alcatel-Lucent chairman, credited Mr. Verwaayen for leading the company out of a difficult transition following its merger.
“Over the last few years, Ben has set a new direction, created one company out of two, and has recently seen through the completion of the stabilization of the company’s balance sheet, enabling us to move forward with confidence,” Mr. Camus said.
When Mr. Verwaayen took over in 2008, Alcatel-Lucent had already cut 16,500 jobs and posted a combined €16 billion in losses since the 2006 merger.
Since then Alcatel-Lucent has seemed to lurch from one restructuring to the next, even as it increasingly lost ground among its key European customers. In July, with its finances looking increasingly tenuous, Alcatel-Lucent announced plans to cut another 5,500 jobs; most observers believe they will not be the last cuts.
The reshufflings failed to significantly reduce the company’s size. Alcatel-Lucent currently employs about 76,000 workers. At the end of 2008, the company said it had 77,177.
Mr. Nilsson, the Handelsbanken analyst, said Alcatel-Lucent could end up being sold for its remaining assets, which include a strong position in the business for undersea communications cables, as well what he described as “very solid” relationships with U.S operators, including AT&T and Verizon.
“Five to 10 years from now, I would not be surprised if the company was no longer called Alcatel-Lucent,” Mr. Nilsson said. “But there are some strong assets, and I am sure those businesses will survive in some form.”
Odon de Laporte, a telecoms analyst with CA Cheuvreux in London, said Mr. Verwaayen had bought time for his successor to deliver on the existing strategy or come up with a new one.
He said investors were hoping the next chief executive would be a high-profile person with knowledge of the international telecom industry. “The worst case, in my view, would be to appoint a French technocrat, operating under political pressure,” he said.
The new chief would need to move quickly to streamline the company, probably selling off the submarine cable and enterprise businesses, and — above all — to implement rapidly whatever restructuring plan is needed.
“They need to execute this,” Mr. de Laporte said. “They’ve always been two years behind the curve in cost cutting and restructuring. It’s a fast-moving business and you need to move quickly.”
Mr. de Laporte added that the cultural challenges that confronted the combined company early on were no longer so large a factor.
“It’s not about American-French integration anymore,” he said. “That’s behind us. It’s about the market and strategy. If you have good products and a good strategy, French and Americans can work together.”
David Jolly contributed reporting from Paris.