The announcement today that Patricia Russo, Alcatel Lucent’s CEO and Serge Tchuruk its non-Executive chairman are stepping down should come as a surprise to no one.  The merger of U.S. based Lucent and France based Alcatel, formed in November 2006, can be viewed as nothing short of a major disappointment to date.  These moves have been rumored for a while but it was generally thought that ALU would wait until they found a replacement CEO candidate before announcing departures.  Today it was announced that Russo will depart the company at the end of 2008 or perhaps earlier as they also announced net losses in the quarter close to 1.7B.  Thus far, investors are tepidly applauding the move moving the stock price up around 6% as of this writing, relatively little solace for those long timers who have seen their stock’s value drop by 60% since the company being formed.

Key Recommendations to Alcatel-Lucent
Alcatel-Lucent MUST:
• Identify a suitable CEO candidate (potentially from the outside of the company and industry) who will take the measured risks and bold actions required to be successful in a disrupted telecom industry, such as divesting non-core assets, rationalizing the workforce, establishing new channels to market, addressing emerging market requirements, determine a strategy to branch out into tangential opportunities such as a provider of technology and services to media companies.
• Get out ahead of LTE, which will be driven by the CDMA operators such as Verizon. This goes beyond providing infrastructure to supporting the development of the broader service, platform and device ecosystem that LTE is being targeted toward.
• Continue to strengthen its presence in the services market by broadening its customer base beyond merely the traditional communications market and into, for example, the media industry. Creating greater coordination with its product business is also essential.
• Augment its IMS and SDE offering so that it anticipates the bifurcation of infrastructure requirements between those focused toward traditional communications services and those targeted toward the long tail of services and applications that are emerging under the guise of the Anywhere Network.
• Capitalize on its strong incumbent position as the telecommunications industry transforms itself from its traditional communications roots. We expect further margin pressure on the business driven by the increasing market pressure of the Chinese vendors and growth of business in emerging markets.
• Position itself to better serve operator clients in emerging markets across Asia, Africa, Middle East and Latin America who are presently investing heavily in next-generation networks, but also in service-led business models that offer new margin opportunities for equipment vendors.