Alcatel-Lucent ousted its chairman and chief executive on Tuesday and lowered profit expectations yet again - further evidence that Asian rivals, Ericsson and Nortel are taking market share. The world's No 1 provider of fixed-line telecoms networks has lost more than half of its market value since it started operating as a combined group in December 2006.
Chief Executive Patricia Russo, who took the reins after the merger, leaves this year with a payoff of 6 million euros ($9.45 million). Meanwhile, the group's 70-year-old chairman Serge Tchuruk, architect of the merger between France's Alcatel and Lucent of the United States, will leave on October 1.
The complexity of the controversial deal combined with irreconcilable corporate culture clashes and dire market conditions were partly to blame for the group's woes, analysts said. The group took too long to select its combined technology portfolio, spooking customers amid fierce competition, while management - which lost key people after the merger - struggled to remain focused, they said.
"We have felt that weak management is mostly to blame for these shortcomings and we hope that new management can bring the company back to greatness," said Nomura analyst Richard Windsor in London. The group's shares rose as much as 6 percent, and were up 2.1 percent at 3.91 percent by 1122 GMT. The stock has fallen 63 percent since January 2007.
Investors have been pushing hard for many months to get rid of Russo and Tchuruk. In May shareholders publicly criticised the pair and approved measures that made it easier to dump them. "Now there is an opportunity for new management to come in and make changes," said Bettina Tratz-Ryan, research VP at Gartner. "The focus needs to go back where their stronghold is - into broadband and creating value from it.
Alcatel-Lucent cut its forecast for third-quarter sales, saying it now expected them to remain flat or decline against the previous three months to June while investors were looking for growth of about 2.5 percent. "They are massively understating the market share they have lost," Nomura's Windsor said. "We think that the company is losing share to Nortel and to the Chinese."
Nokia Siemens, Ericsson and Alcatel-Lucent are the leading players in the telecoms network market, but have been increasingly challenged by Chinese vendors Huawei and ZTE. With aggressive pricing Huawei took the No 4 spot in the global telecom network gear market at start of the year, bypassing Nortel Networks and Motorola.
Alcatel-Lucent also reported underlying April-June sales and profits which came in slightly ahead of expectations, but reported a big net loss for the quarter due to writedowns. The group said it expects 2008 revenues to fall "in the low to mid single-digit range". "This leaves an awful lot of revenues to come in Q4 to meet the full year guidance, raising the spectre of yet another warning in Q4 2008," Nomura's Windsor said.