NEWSMAKER-Russo out at Alcatel-Lucent, a French-US disconnect

NEW YORK, July 29 (Reuters) - Alcatel-Lucent (ALUA.PA) CEO Patricia Russo was ousted on Tuesday after failing to live up to hopes that she could breach cultural divides at the French-American telecom equipment company.

Russo was always going to be an anomaly among France's business elite, becoming the only American and the only woman to head a company in the country's CAC-40 index of blue chips when she took the job in December 2006.

But even her most loyal supporters now have to concede that the merger was a disaster under her reign. The company lost more than half its market value, beset with tough new competition and consolidation among its clients.

Alcatel-Lucent said on Tuesday that Russo will step down by year-end, along with Chairman Serge Tchuruk, who leaves Oct. 1.

"We would suspect that the new CEO is likely to be French," said Nomura analyst Richard Windsor. "We hope that a new CEO will be able to bridge the cultural divide between the Americans and the French and get all sides pulling together."

Analysts applauded the ouster of Russo, 56, who came with a reputation for cost cutting and tough negotiating. The U.S. shares of Alcatel-Lucent (ALU.N) rose 6 percent to $6.10, while the Paris shares rose 2 percent to 3.91 euros.

Despite the hype and optimism around the cross-Atlantic merger, which promised massive savings in a difficult market, in reality the ink was not even dry in late 2006 when Russo started to come under pressure.

She caused a stir in some circles by revealing that she would not take lessons to brush up on her high-school French because the French-American company's official language was English.

On a practical level, a strong grasp of French could have helped her communicate with investors or worker union members who do not speak English from day to day.

On an emotional level, many French people made no secret of their regret that English was the business lingua franca and some said they were shocked at Russo's language decision.

New Jersey-born Russo eventually promised investors she would learn the language, but by then it was already too late.

TRANSFORMATION

Russo had helped launch Lucent Technologies in 1996, after its spin-off from AT&T Corp.

The Murray Hill, New Jersey-based company was once the world's largest telecom equipment maker and the most widely held stock in the United States, before it became the poster child of the telecom industry meltdown at the start of the decade, when a period of over-expansion caused demand to tank.

Russo, who left the company in August 2000 and became Eastman Kodak's chief operating officer in April 2001, was drafted back to Lucent in January 2002 to transform her old employer after the dotcom burst.

Demand for network gear had plummeted, and Lucent's aggressive use of vendor financing -- the loaning of money to customers to buy its gear -- combined with product missteps and aggressive growth forecasts had proved a disaster.

A chocolate lover who kept a jar of M&Ms at her desk, Russo pushed through cost cuts that included nearly halving Lucent's work force and ditching some products and units to streamline the company.

She also followed the Alcatel takeover with steep job cuts, but was criticized for taking too long to select a combined product portfolio. Management of the company, which lost key people, also struggled to remain focused after the deal.

Critics said Russo should have made bigger changes at Alcatel-Lucent to bring it more squarely into the era of the Internet from the mentality of a plain-old-telephone world.

"She needed to transform the company and she didn't," said long-time independent telecom analyst Jeff Kagan, who had high hopes for Russo when she took moved from being CEO of Lucent Technologies in 2006 to head the merged company.

But while the deal gave Lucent, which has to fend off new rivals such as China's Huawei Technologies Co [HWT.UL], some time to revamp itself, it also made the task harder.

"She bought them an extra few years but also made it more complicated," said Kagan.

Co-workers say Russo is very approachable and has picked up some relaxing hobbies. In addition to keen skills as a golfer, she also plays tennis, has owned harness-racing horses with her husband, and vacations on Florida beaches.

She has two step-children and six siblings, including two handicapped brothers she helped to raise.

Asked how her rough time in France had changed Russo, one co-worker said only, "I don't think her affection for chocolate has changed." (Editing by Gary Hill) (Reuters Messaging: sinead.carew.reuters.com@reuters.net; +1 646-223-6186))