March 27, 2013 / 7:42 PM / 7 years ago

UPDATE 2-New Alcatel-Lucent CEO to unveil plan in June

* Michel Combes faces steep task ahead

* Expectations new CEO will speed up cost cuts-unions

* Analysts say group needs shake-up to meet 2015 targets

* Question over how much further to go on asset sales (Adds background, source, shares)

By Leila Abboud and Catherine Monin

PARIS, March 27 (Reuters) - The new chief executive of Alcatel-Lucent, set to take over on April 2, will present his plan for the loss-making telecom equipment maker in June, a spokeswoman said.

Michel Combes, the 51 year-old former head of Vodafone’s European business, faces a steep task if he is to solve the group’s problems of persistent cash burn, high costs, and stiff competition from larger rivals Sweden’s Ericsson and China’s Huawei.

His predecessor Ben Verwaayen, whose departure was announced in February, was criticised for being too slow to launch major cost cuts and was unable to deliver a promised turnaround in his five-year-long tenure, hampered by weak demand for telecom gear last year. In 2012, the firm posted a 1.4 billion-euro ($1.8 billion) net loss.

“Combes gave himself the month of March to listen and learn about the situation of the company by meeting with major customers and employees,” said a spokeswoman for Alcatel-Lucent.

“He will take two months to decide on a plan and will announce in June the major strategic orientations for the group in the three coming years.”

Labour union representatives who met with Combes on Monday said they expected him to accelerate the 1.25 billion euro cost-cutting plan, which includes 5,500 job cuts. But they said Combes would take time to decide on asset sales because the group has breathing room after a 2 billion euro funding package in January.

“Michel Combes explained that it was imperative to go more quickly on the plan to cut jobs,” said a labour union source who declined to be named because the talks were internal.

“He doesn’t reject the idea of asset sales if they make sense, but we are no longer in an urgent mode to sell under pressure from the markets.”

Alcatel-Lucent’s streamlining to date has been less ambitious than rival Nokia-Siemens Networks, which cut nearly one-quarter of its workforce last year and sold off large business lines in a successful bid to return to profitability.

Morgan Stanley and Bernstein Research analysts have begun calling for Combes to begin a major revamp, including an exit from the loss-making fixed-line and optical businesses.

The prior management had set a 2015 target for an adjusted operating margin of 6 to 9 percent as part of a January loan deal, and Combes’ pay package and bonus are linked to the goal.

“The mission Combes has been given by the board is to turn around the company. It is not a question of dismantling everything or sticking with the approach of Verwaayen,” said a person familiar with the company’s thinking.

“He will review every aspect (of the strategy). There will be no sacred cows.”


Since its formation in a merger in 2006, Alcatel-Lucent has not reached sustainable profitability or cash generation.

It has strong technology in fixed broadband, optical transmission gear in the backbone of networks and fourth-generation mobile (4G), but struggles with a high cost base.

The U.S. market, which is essentially closed to Chinese competitors and where operators have invested heavily in 4G, has saved it in recent years as it lost share in Europe and Asia.

Alcatel-Lucent shares have risen 3.8 percent this year to close at 1.02 euros on Wednesday, but its market capitalisation is 2.4 billion euros, less than one-tenth of pre-merger levels.

Alcatel-Lucent said in December that it was considering sales of non-core assets worth 1-1.5 billion euros. Banking sources earlier told Reuters the undersea optical cable business, and a unit that sells telecom gear to corporate customers were being evaluated for sale.

Morgan Stanley analyst Francois Meunier argued in a note that Alcatel-Lucent should sell off its entire optics business - undersea cables and land where competition with China’s Huawei is fierce - as well as its fixed line products, long one of the group’s core strengths.

Pierre Ferragu from Bernstein Research believes a more radical revamp of the group’s activities is needed but is not sure when it will happen.

“For the time being, it seems that Combes does not have the backing from the board to implement radical changes to the company’s perimeter,” said Ferragu.

“But Combes could later come back to the board in six months or a year and seek support for bolder change.” ($1 = 0.7777 euros) (Editing by Lionel Laurent and Elaine Hardcastle)

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