Alcatel-Lucent Hits the Ground, Prepares to Cut Products and
By Leila Abboud in Paris and Sara Silver in New York
The Wall Street Journal
Tuesday, December 5, 2006
Telecommunications-equipment maker Alcatel SA of Paris has
put the finishing touches on its $11.6 billion acquisition
of Lucent Technologies Inc. Now the new
Alcatel-Lucent will have to break the news to customers
about which products it will continue to carry and tell the
staff which 9,000 employees will lose their jobs.
How quickly and effectively the company can resolve those
two issues will go a long way toward determining if it can
deliver its promised target of €1.4 billion ($1.87 billion)
in annual cost savings by 2009, a factor in making the
merger a success.
Streamlining the technology portfolio without losing
customers is one of the trickiest tasks the Paris company
faces. The new chief executive of Alcatel-Lucent, Patricia
Russo, acknowledged the difficulty in an interview Friday,
the day after the merger was finalized. She said about
4,000 salespeople had been trained in recent days, and on
Friday they were already fanning out to talk to customers
throughout the world about the new product portfolio.
"There is no question that when you go through a merger your
competitors see an opportunity to create uncertainty and
doubt with customers," said Ms. Russo. "But today we can
start talking to customers about our plans to make them feel
more comfortable." She added: "We want to do this in a way
that is very considerate of customers' interests and takes
into account what technologies they already have in place."
Telecommunications operators such as
Verizon Communications Inc. and
AT&T Inc. buy the infrastructure for their wireless and
fixed-line telephone networks from equipment companies
including Alcatel-Lucent, often committing to spend hundreds
of millions of dollars during a decade or more. Switching
technologies is costly and inconvenient, so operators are
reluctant to do so. With the merger, these delicate client
relationships will be tested as Alcatel-Lucent tries to get
its customers to switch to the products that it wants to
keep, while supporting the old products long enough to keep
Alcatel-Lucent has estimated that about €400 million of the
cost savings from the deal should come from rationalizing of
the product lines. For example, Alcatel is the market
leader in equipment that lets carriers deliver high-speed
Internet via telephone lines. Lucent's wireless products
for North America are much stronger. Over time, the new
company will want to move toward selling only the stronger
products. For telecommunications carriers that are running
the older equipment, the change could be tricky and costly.
Where the technology is more evenly matched, Alcatel-Lucent
will likely have to develop a single, updated version for
all customers, said Niel Ransom, who until last year was
Alcatel's chief technology officer. This means it will be
difficult for Alcatel-Lucent to cut these
research-and-development costs quickly.
Paul Lacouture, executive vice president of engineering and
technology for Verizon Telecom Group, said he was eager to
hear Alcatel-Lucent's strategy for ensuring a "graceful
transition" for the equipment that will be phased out, "but
that is something we face all the time, merger or not, as
each supplier brings out new generations of products."
Verizon Communications, together with Verizon Wireless,
which is 45%-owned by
Vodafone Group PLC, accounted for 28% of the $9 billion
in revenue Lucent, of Murray Hill, N.J., posted for fiscal
2005. Verizon Communications also is a major Alcatel
Another challenge of integrating Alcatel and Lucent is
carrying out the planned job cuts without disruption or
major protests from French labor unions. The company has
said that it is targeting duplicate back-office and
administrative jobs, as well as research-and-development
jobs for discontinued product lines. More than half of the
planned savings from the merger will come from cutting 10%
of its global work force.
In France, strong labor laws protect workers from layoffs,
so the process of firing people is slower than in the U.S.
Nevertheless, former Alcatel chief executive and chairman of
the new company, Serge Tchuruk, said: "There will be job
cuts in France like everywhere else."
One union in the French city of Nantes put up posters with
the slogan "1 wedding, 9,000 funerals." Jean-Baptiste
Triquet, a union representative at Alcatel, said that beyond
the immediate layoffs, workers worried that "the new company
does not see its future in Europe. They aren't hiring in
France, and once the layoffs are over there might very well
be more R&D staff in China than here."
Analysts worry about the fallout from staffing cuts. "The
risk here is that the sales force gets distracted from
taking care of customers while the integration is going on,"
said Jeffrey Schlesinger, an analyst for UBS AG. In a
competitive telecommunications-equipment market, "there are
a lot of vultures circling, waiting to capitalize on any
slip-ups," he said.
Write to Leila Abboud at
firstname.lastname@example.org and Sara Silver at