Alcatel-Lucent Officials Push Newest Restructuring Plan

Wary analysts say the company's Shift Plan makes sense, but they want to see how Alcatel-Lucent implements it before making a final determination.

Alcatel-Lucent, the embattled network equipment maker that has struggled financially since its creation in 2006, is set to undergo another companywide restructuring that is getting a cautious reception from analysts.

Alcatel-Lucent is calling its latest effort the "Shift Plan," a move to transform the company from a more general telecommunications equipment vendor to a specialist focusing on IP networking and ultra-broadband access, both areas that show high growth due to the growing demand from cloud and Internet providers for high-speed networks.

The Shift Plan is expected to save the company about $1.3 billion in expenses and generate another $1.3 billion by selling various assets over the next two years. In addition, Alcatel-Lucent will spend as much as 85 percent of its R&D money on IP networking and ultra-broadband access efforts by 2015. The Shift Plan also would mean more job cuts for the company, which currently employees about 72,000.

The initiative comes a little more than two months after Michel Combes took over as CEO of the company, following the resignation of Ben Verwaayen after four unsuccessful years trying to cut costs and stabilize the company.

Analysts said that any plan by the company to reduce the number of its businesses makes sense. However, some are wary of yet another big corporate move by Alcatel-Lucent, and question how quickly the company will be able to exit some of its other businesses. In the meantime, Alcatel-Lucent—like other European networking equipment providers (NEPs) such as Ericsson and Nokia Siemens Networks—faces increasing pressure from competitors from Asia, particularly Huawei Technologies and ZTE.

"Alcatel-Lucent's strategy change shows just how fast market dynamics have changed in a market once dominated by the large Tier-1 telecommunication providers that are its customers, but increasingly under siege by Internet content providers, and by NEPs based in the West that have been out-competed by Chinese vendors, most notably Huawei, and by specialists," Ron Kline, principal network infrastructure analyst at Ovum, said in a research note. "The move will allow Alcatel-Lucent to focus on cloud and large-scale Internet providers that are generating a growing portion of bandwidth demand."

Where the company may be challenged is finding buyers for its legacy businesses, such as its, optical networking unit, Data Communication Structure products and SONET/SDH media dependent adapters, Kline wrote. In addition, there could be regulatory barriers to selling its Submarine Network Solutions unit, he said.

"Given the extent of the installed base of legacy products and the relevant customers, accelerating an exit could prove difficult," he wrote. "Alacatel-Lucent faced a similar dilemma when it rationalized its products back in 2006 after the merger [between Alcatel and Lucent]. However, customer protests made the company reverse its decision."