Management Turnover as Change Agent

Tuesday, July 29, 2008

CEO Watch - The Inevitable is Inevitable - Alcatel-Lucent CEO and Chairman Out

Probably a year overdue (see earlier blogs), the CEO and Chairman of French telecommunications giant Alcatel-Lucent ALU (NYSE), Patricia Russo and Serge Tchuruk have announced their resignations.  Chairman Tchuruk will step down as of October 1 and CEO Russo will leave by the end of the year or earlier should a replacement be found.  Along with the departure of Russo and Tchuruk, will be board member Henry Schacht, a former Lucent CEO.  

Alcatel-Lucent which merged in late 2006 has been struggling since its inception.  The company just announced its sixth straight quarterly loss.  According to Information-Age,
...the company revealed that it lost €1.1 billion during its second financial quarter of the year – its sixth consecutive quarterly loss. That is roughly three times the €336 million loss that Alcatel-Lucent reported in the same quarter of last year.

Alcatel-Lucent's ill-fated CDMA division continues to be its biggest loser. The company wrote down the value of its division that sells technology based on t
he wireless transfer protocol by €810 million.
Stacey Higginbotham from the GigaOm blog summed up the company's situation succinctly,
Alcatel-Lucent is seeing falling demand for its equipment while its carrier customers contemplate the slow migration to 4G technologies such as LTE and WiMax. The next generation networks are coming, but are still several quarters out with LTE networks coming on line in 2010 and full deployment closer to 2012. 
WiMax is growing now, but is a smaller market. Another wrinkle is that some carriers such as Vodafone in the UK are content with their 3.5G networks, and don’t plan to move to LTE for even longer.
Russo who is known as a strong figure continues to make a case for herself.  She was quoted in today's corporate press release as follows,
“I am very pleased with the progress we are making especially in light of a difficult market environment,” ...  “Our strategy is taking hold and our results are demonstrating good operational progress.  That said, I believe it is the right time for me to step down.  The company will benefit from new leadership aligned with a newly composed Board to bring a fresh and independent perspective that will take Alcatel-Lucent to its next level of growth and development in a rapidly changing global market. "
While there may be positive news about the company it is very small and limited.  Chairman Tchuruk also gave his own pitch for the work the two have performed particularly in relation to the giant merger.  He is quoted in the press release in which he states,
“The merger phase is now behind us.  I am proud that Alcatel-Lucent has become a world leader in a technology which is transforming our society.  It is now time that the company acquires a personality of its own, independent from its two predecessors.  The Board must also evolve and the Chairman should give the first example, which I have decided to do,”...
For the moment, the market was very happy to see the announced executive changes.  In early trading the company stock was up.  The real question is who the company can find to replace the two.  Today's management change announcements can be viewed as acknowledgement of the merger's failure.  While so far, both Russo and Tchuruk failed to right the ship and get the real savings from the merger they intended, the problems facing the telecommunications sector still mean there is potential for this merger to succeed.  Hopefully, the right management may still have a chance to turn the company around.

Keep a close eye on who the company chooses to replace the Russo and Tchuruk.  The company needs to find executives with deep knowledge and expertise in the telecom sector.  While financial expertise is essential Telecom expertise is paramount.  Stay tuned.

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