Alcatel-Lucent (NYSE: ALU) has set the next stage of CEO Michel Combes' Shift Plan with a focus on diversifying its customer base by selling more of its portfolio of edge and core routers to large enterprises and content providers.
By seeking out more opportunities for its IP router business, Alcatel-Lucent could better differentiate itself from its two closest competitors, Ericsson (NASDAQ: ERIC) and Nokia (NYSE:NOK), two companies that are primarily focused on the wireless market, while enhancing its competitive stance against traditional router vendors Cisco and Juniper.
Large enterprises' expanded focus on taking more control of their networks is providing new opportunities for companies like Alcatel-Lucent, which has traditionally been a vendor mainly serving the service provider market.
In addition to large enterprises, Alcatel-Lucent is looking to attract large Internet companies Google and Facebook, both of which have to build and manage their own computing and data center networks to support their services.
Other obvious targets would be state and local government, fire and police departments. Having sold off its enterprise and public sector divisions in recent years, the company would have to acquire new research and development and marketing experience to target these segments, executives told Reuters.
Over 90 percent of Alcatel-Lucent's revenue comes from its sales to service providers, including a mix of U.S.-based carriers like AT&T (NYSE: T) and Verizon (NYSE: VZ) and large international providers like Orange and Vodafone.
Alcatel-Lucent was a bit of a late bloomer in the router segment, entering the market in 2004 by initially selling edge routers by purchasing the former Timetra. Later in 2012, the company began offering its own core networking product to put it on a more competitive footing with Cisco and Juniper.
In order to target other customer segments, Alcatel-Lucent has established partnerships with Hewlett-Packard and Accenture. What's more, the company could leverage its large telecom customers like Orange to serve as an indirect sales channel to sell routing wares to businesses as part of a service package.
Since Combes took over the reins of company, Alcatel-Lucent has signed over 15 companies outside of the service provider industry, including Paris transport network RATP to provide Wi-Fi services in the metro.
While it won't announce its fourth-quarter 2014 earnings until Feb. 6, Alcatel-Lucent reported that IP routing proved to be a stellar revenue performer, rising 2.2 percent to $749 million in the third quarter of 2014.
A key standout in the third-quarter IP routing segment results was its 7950 XRS IP Core router, which mainly garnered service provider wins, including CenturyLink, which also has a large enterprise customer base. It's likely that Alcatel-Lucent would try to seek similar success in the enterprise market with that product.
Seeking out new vertical market opportunities is not just relegated to its router division. The vendor's submarine cabling subsidiary acquired Optoplan last October in order to enhance its presence in serving the oil and gas industry, for example.
For more:
- Reuters has this article
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