The continued decline of Alcatel-Lucent: A wakeup call

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A. Michael Noll

The French telecommunications manufacturer Alcatel lusted after the American Lucent Technologies, and in 2006, after a few years of courtship, consummated the affair. Alcatel acquired Lucent for $13.4 billion in Alcatel stock to create Alcatel-Lucent. The usual justification for the merger was made about synergies, efficiencies and expanded markets.

In reality, another cross-Atlantic mixed marriage has gone sour. Over the past 52 weeks, Alcatel-Lucent (NYSE: ALU) stock has fallen from $6.63 to as low as $1.50, recently. Market capitalization is now under $4 billion, although the company had revenues in 2011 of about $15 billion.

Blending the different cultures of the French Alcatel and the American Lucent has been a challenge. Synergies were much more difficult to find than originally thought. Alcatel expected they would obtain a storehouse of innovation from Lucent's Bell Labs. The truth was that the downsized Lucent Bell Labs was not comparable to the invention factory of Bell Telephone Laboratories, Inc. of decades ago. It was the past that had value today, mostly in its history.

By holding on to the Bell Labs identity, comparisons with the past Bell Telephone Laboratories are invited. Since nothing much really is gained by attempting to hold on to that past legacy, it might be best for Alcatel-Lucent to create a new identity in an "Alcatel-Lucent Labs." They should emphasize the "present" rather than the "past."

There are only two strategies: either lead through innovation or be a low-cost provider, or best yet, do both. Alcatel-Lucent seems to be neither. Innovation does not occur in a climate of desperation. Instead, Alcatel-Lucent needs to institute a vigorous focus on the innovation that will ensure its long-term viability as a source of communication systems in this rapidly moving business. But time to do this is rapidly running out.

What might the future bring? Changes are necessary, in management and strategic direction. Will Alcatel decide to divorce itself of its North American Lucent partner? Will Alcatel-Lucent be acquired at a bargain-basement price and then be broken apart? Will Alcatel-Lucent itself attempt to reorganize? Will Ericsson (Nasdaq: ERIC) continue its cherry picking of U.S. entities, such as its recent acquisition of Telcordia, to focus next on Alcatel-Lucent?

A. Michael Noll's recent book, co-edited with Michael Geselowitz, Bell Labs Memoirs: Voices of Innovation, tells the story of Bell Telephone Laboratories in the 1960s through the lives of a few who were there. It is available from Amazon. Noll is professor emeritus at the University of Southern California and a noted commentator on the communication industry.