Alcatel-Lucent's Verwaayen steps down as its turnaround battle continues

Company revenue declines 1.3 percent year-over-year
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Alcatel-Lucent (NYSE: ALU) CEO Ben Verwaayen, who came to the struggling vendor in 2008 with the goal of turning around its financial fortunes, announced on Thursday he is stepping down.

Ben Verwaayen, Alcatel-Lucent

Verwaayen (Image source: Alcatel-Lucent)

"Alcatel-Lucent has been an enormous part of my life," he said in a release announcing his departure. "It was therefore a difficult decision to not seek a further term, but it was clear to me that now is an appropriate moment for the Board to seek fresh leadership to take the company forward."

His departure comes just as the vendor reported that reported its Q4 2012 earnings in which it posted a net loss of $1.85 billion.

Verwaayen will remain as CEO as the company looks for a replacement. The company has developed a search team led Daniel Bernard with Philippe Camus, Louis R. Hughes, Jean C. Monty and Jean-Cyril Spinetta to search for both internal and external CEO candidates.  

Verwaayen has faced a number of challenges during his tenure, including a difficult economic environment and trying to sell off non-profitable units including the submarine cable and enterprise businesses.  

As reported in FierceWireless citing a Bloomberg article, the company has built up about $13.4 billion in net losses, while its cash reserve has diminished by an average of $941 million a year, since Alcatel and Lucent merged in 2006. Likewise, a Wall Street Journal report said that since Verwaayen took over as CEO the company has posted a 15 percent decline in revenue.

During the third quarter, Verwaayen had undertaken a €1.25 billion restructuring program that included asset sales and 5,500 job cuts. This came after reporting a net loss of €146 million for the third quarter, its second straight quarterly net loss, and revenues of €3.6 billion, a 2.8 percent drop from the same quarter last year.

In November, Alcatel-Lucent began the process to secure funding from Goldman Sachs in a move to bolster its unsteady financial position. At the same time, rumors emerged that it is going to sell its struggling submarine cabling business, one that's garnered the interest of France's sovereign fund FSI.

On Thursday, Alcatel-Lucent reported that Q4 2012 revenues rose 13.8 percent to €4.09 billion ($5.5 billion), up 13.8 percent sequentially, but down 1.3 percent year-over-year. As seen in previous quarters, IP networking sales continued to be a major revenue source.

The company said that its €650 million ($875.3 million) cost cutting plan is on track and that in Q4 it had a free cash flow of €355 million ($478 million) with an adjusted operating margin of 2.9 percent.

Regional geographical performance in Q4 was a mixed bag. While North America grew 10 percent, mixed trends in Asia Pacific drove a low double-digit decline with traction in Japan being offset by slow activity in China. Similar to Alcatel-Lucent's rivals Juniper (NYSE: JNPR) and Tellabs, the European market declined at a "low double-digit rate" due to cautious carrier and enterprise spending. However, Alcatel-Lucent did see recovery in Brazil, the Middle East and Africa "after several quarters of decline."

Here's a breakdown of Alcatel-Lucent's key wireline metrics:

  • IP Division: Once again, the IP division was the star performer in Alcatel-Lucent's product portfolio, reporting €574 million ($773 million), up 26.4 percent from Q4 2011. What drove growth in the IP division were strong sales in the Americas region in addition to winning key network wins in both Japan and China, which it said drove over €100 million ($134.6 million) in the Asia-Pacific region's IP revenues. For the full year 2012, IP division sales rose 24.2 percent over 2011.
     
  • Optical Division: The optical division revenues declined 22.0 percent year-over-year to €565 million ($761 million). As its legacy optical product revenues continued to decline about 30 percent, it narrowed its WDM portfolio declines from 14 percent in 1H 2012 to almost flat in 2H 2012. WDM revenue now represents more than half of the vendor's terrestrial optics revenues. A key driver in the WDM revenue mix was the ongoing customer adoption of its 1830 Photonic Service Switch (PSS), which it said represented 24 percent of terrestrial optics revenues, almost double what they reported in 2011. Throughout 2012, Alcatel-Lucent continued to secure various wins for its 100G platform with 85 customers in 45 countries. Alcatel-Lucent said that the 1830 platform and 100G "will be the key drivers for the recovery of terrestrial optics." Another bright spot was the submarine cable business. During the quarter, it announced five new customer wins, including an upgrade of the trans-Pacific system between Japan and California and Seaborn Networks' Seabras-1 submarine cable network, which will connect the United States with Brazil.
     
  • Wireline Division: Driven by ongoing Fiber to the X (FTTX)-based broadband networks, Alcatel-Lucent reported that the wireline division's revenues saw the first full year of growth since the merger of Alcatel and Lucent. However, in Q4 wireline sales declined 7.4 percent year-over-year to €388 million ($522.6 million). Declines in its IP DSLAM business was slightly offset by the growth in the FTTX business in the Americas region. During the quarter, the vendor shipped almost 1 million GPON ports as service providers such as Bristol Tennessee Essential Services (BTES) built out a Greenfield Fiber to the Home (FTTH) network supporting 1 Gbps. However, the advent of VDSL2 and vectoring has helped Alcatel-Lucent develop an equally compelling copper-based story as seen by Turk Telekom, which is using VDSL2 support its HDTV service offering.

It has overall been a troubling time for a number of telecom vendors, including competitors like Tellabs (Nasdaq: TLAB), which reported it would lay off an additional 300 employees and discontinue its 9200 product line after reporting that Q4 2012 revenue dropped to $242 million, down from $317 million year-over-year.

Alcatel-Lucent's shares were trading at $1.71, up $0.08, or 4.68 percent, in pre-market trading on the New York Stock Exchange.

For more:
- see the earnings release
- and Ben Verwaayen's departure release

Special report: Wireline telecom earnings in the fourth quarter of 2012

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