As CEO Pat Russo explained during today's earnings conference call, it's a move the company's customers needed to hear. A lack of information about which products were likely to survive the Alcatel/Lucent merger led to some carrier customer indecision towards the end of 2006, and that, in turn, contributed to a poor quarter's numbers for the newly formed equipment giant.
"We had to address the portfolio and rationalization -- we had to provide clarity for our people and our customers. For the most part, we have finalized the product portfolio," based around the strategic areas the company is focused on, which Russo said are IMS, 3G, value-added services, next-generation optical and data, and broadband access in fixed and mobile. So, quite broad, really.
Yet Russo was still coy about releasing any details about products that are being discontinued. Only when asked to confirm a particular decision in the wireless business was any detail forthcoming.
Here's what the company has made public. In its fourth-quarter and full-year results presentation today, the company recorded restructuring costs of �577 million (US$749 million). The main components of this were "write-offs of intangible assets related to 3G mobile & optical/data" and "product termination related to 3G mobile & optical/data." General merger-related costs and headcount reductions accounted for less than �60 million ($78 million).
"We did a lot of work in advance [of the merger] in terms of making decisions about the portfolio and the roadmap -- how to blend and merge the feature functionality that's important to the customers, and you need to plan that to go over a couple of years. For the most part that is done, but we couldn't communicate that until we were combined," said Russo.
The process of telling the carriers happens in two phases, added the CEO. "First, we need to talk about the general portfolio, about what customers can expect. That's followed by the more technical briefings that the tech folks want to have to understand specifics around roadmaps, timeframes, and feature functionality. We started this as soon as we could, but we have a lot of customers and it takes a long time."
As a result, the first quarter of this year will also be hurt by some further carrier indecision about purchasing, and revenues are expected to be lower compared with a year ago. And that's another reason the company is making further cost reductions. (See Alcatel-Lucent Job Cull Hits 12,500.) Russo also claimed that, among the product rationalization decisions, "there were no surprises," and that customer reaction to the decisions made has been "good." She added: "A lot has been done, but there's obviously a lot more to do." So what has been done? Evolium 3G pushes up the daisies The CFO also noted that �150 million in fourth-quarter charges was related to the discontinuation of that product line. What this means, in essence, is that a number of small regional operators, and one major operator, are getting better 3G technology. That one major is France Telecom SA (NYSE: FTE - message board)'s national mobile operator, Orange France (Paris: OGE - message board), which deployed Alcatel 3G equipment in Paris, where Alcatel-Lucent has its headquarters. (See Alcatel Trials HSDPA.) But if Alcatel's 3G base stations have been stamped "end-of-life" and forklifted to the recycling plant, what does that mean for the former Lucent UMTS access gear? It had only one major customer, but what a customer -- Cingular Wireless LLC . (See Lucent, Cingular Prep HSDPA.) That didn't crop up in the analyst Q&A, and AlcaLu isn't commenting on its status. The vendor continues to push the message, though, that its roadmap includes the development of next-generation 3G radio access equipment that will incorporate "best of breed" elements from the Nortel, Lucent, and Alcatel lines. Optical squeeze Only a few weeks ago, though, the message coming from that division's head of marketing, Tom Goodwin, was that all products (about 20 in total inherited from Alcatel and Lucent) are being supported, and that all commitments to existing customers are being honored. He added, though, that some of the more legacy platforms would be "bid only on a tactical basis." He told Light Reading that "we are looking at the synergies, the installed base, the current customers, the market forecast, and expectations of future demand," and that decisions would be made about how to move towards an all-packet transport platform. He also said that, at the time, no products had been terminated. "We are not going to pull products out of the market that are being used by existing customers." That means that some competing products, such as the Alcatel 1696 Metrospan and Lucent's Metropolis Wavelength Services Manager (WSM), will continue to coexist. Goodwin said that, "where we have a conflict, when [different] products are deployed in the same network, we focus on how they can coexist, and how to migrate to the next-generation path. It's a growth and evolution issue." Goodwin also said that Alcatel-Lucent will be introducing new products and has the resources to manage what it already has. "I would expect our competitors to pick away at us," but "we understand how the optical markets are going to transform, and we have the best portfolio. We are the market share leader in nearly all markets."
Alcatel's home-grown 3G base station is no more. It is an ex product. That much was confirmed in response to an analyst question. Alcatel-Lucent CFO Jean-Pascal Beaufret confirmed that 6,000 Evolium base stations are being ripped out and replaced by Node B UMST access products acquired from Nortel Networks Ltd. (NYSE/Toronto: NT - message board). (See Alcatel Snags Nortel 3G Unit.)
The other division to have taken a hit on product rationalization is optical, but the vendor is not providing any further details about exactly what's been terminated there.
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