Alcatel-Lucent released some detail on their much anticipated re-structuring initiative earlier today. They said some of the right things—reinforcing focus on areas of product leadership [IP/IMS, optics, broadband access, EVDO], “streamlining” mature product portfolios [such as CDMA, GSM, ADSL, legacy apps], promising more agile R&D, consolidating carrier group from 6 to 4, and the elimination of 1000 “manager” and 5000 contractor positions. Execution will be hard, as it always is for a company of ALU’s scale, especially in this economy and given ALUs track record of implementing internal restructuring initiatives [not great].
Of course this news will also again cause many ALU employees to lose a degree of external focus on customers as they prepare for yet another round of layoffs and re-org—without fail a productivity and morale killer. But ALU’s new leadership didn’t have a choice, they had to do something NOW.
More details are required to fully understand the ramifications of these moves on existing customers, many of which have spent millions on the gear that now fit into the “mature” category and now face the nefarious “streamlining”. This will be cause for concern as the economy and capex tightening is causing many carrier customers to extend their legacy investments as a hedge.
That said, I have to applaud ALU for not killing or divesting underperforming divisions all together. I’ve personally lived through that strategy at 3Com back in 2000 when management decided to discontinue the high end switching platforms, Corebuilder. The reasoning was logical–take out the underperforming business to focus on growth areas–back then it was stackable switches. 3Com’s strategy had one major, unforseen flaw. The high end switch business pulled the stackable business through. Without the razor they could NOT sell the blades. I think there are some similarities with what a company like ALU faces. If they kill off or spin-off an underperforming unit, like CDMA, do they expect their biggest CDMA customers to shrug it off and keep buying the new gear? Not likely. Killing or selling divisions also open up the floodgates for competitor FUD which they already have enough of to deal with.
We are eager to see how ALU executes on its new strategy and hope that through it all they find a way to keep focus on their customers vs. internally or on the whims of Wall Street.
