Tags: alcatel | ceo | quit | loss

Alcatel CEO to Quit After $1.85 Billion Loss

Thursday, 07 Feb 2013 07:15 AM

 

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Telecom equipment maker Alcatel-Lucent said its chief executive was leaving after it swung to a net loss of 1.37 billion euros ($1.85 billion) for 2012, hit by lower sales in Europe and China and a writedown of its wireless and optics businesses.

CEO Ben Verwaayen said the company needed a new leader to complete its turnaround when his mandate ends in May.

"If you look at the task at hand, it is focused on execution," said the Dutch-born executive. "Looking in the mirror, I felt maybe that's not my natural strength, and maybe it will be good for the company to get fresh perspective."

The group, which was formed in a merger in 2006, said it would look for a successor internally and externally, and gave no timetable for the appointment.

Since arriving in September 2008, Verwaayen has been unable to deliver on his pledge to return the group to "normal", with steady cash flow and profit.

Its stock has lost 70 percent since then, destroying about 7 billion euros in market capitalization and knocking it out of the French blue-chip index. The European technology index was flat over the same period.

The company's shares were up 7.8 percent at 0908 GMT on Thursday, however, as Verwaayen's departure opened the door to more drastic restructuring of the group.

"Verwaayen's track record has been at best mixed: the group is still posting losses, its position in the market has been eroded, and revenues have shrunk," said Alexander Peterc, analyst at Exane BNParibas.

"The shareholder can only welcome the arrival of a new CEO to shake things up."

Peterc said Verwaayen had not gone far enough on cost cuts and asset sales, compared with competitor Nokia-Siemens Networks (NSN), which laid off a quarter of its staff and sold off large chunks of the business to get back to profitability last quarter.

Even after Verwaayen trimmed the product portfolio and pushed through several rounds of lay-offs, the group remains hobbled by its smaller size and higher proportional cost base relative to rivals Ericsson, China's Huawei and NSN. Outside the United States, Alcatel has small market share in mobile and has not kept pace with new radio antenna technology now sold by Ericsson and Huawei.

BACK INTO THE RED

The group's fragility was laid bare last year when telecom operators cut back on spending on network gear as the global economic downturn dragged on, forcing Alcatel back into the red after its first annual profit in 2011 since its merger.

Sales fell 5.7 percent to 14.45 billion euros last year.

The group's annual adjusted operating profit was 117 million euros, giving it a margin of 2.9 percent, far below the 5-9 percent margins Verwaayen had once promised.

It burned through 679 million euros in cash for the year.

In the fourth quarter, usually the strongest for telecom gear groups, sales fell 1.3 percent from a year earlier to 4.1 billion euros, as strong U.S. growth was swallowed by weakness in Europe and Asia.

Sales were largely in line with analysts' estimates for 4.12 billion euros in the fourth quarter and 14.51 billion for the year, according to Thomson Reuters I/B/E/S.

The company's net loss stemmed largely from a writedown of 1.4 billion euros "related to the depreciation of goodwill and fixed assets, and the corresponding impact on deferred tax."

Chief Financial Officer Paul Tufano said the charge was linked to the lower value of its wireless and optics businesses.

MORE ASSETS SALES

Alcatel-Lucent sold its growing call-centre business Gensys to private equity firms for $1.5 billion last year, but couldn't unload its unprofitable enterprise unit, which it wanted to get rid of at the same time. Further asset sales are now being studied, such as the undersea cable unit.

Alcatel is likely to get some help from an expected uptick in spending on telco equipment by global carriers this year.

Market research group Gartner forecasts sales of network equipment will rise 2.3 percent to $79 billion in 2013, after falling 6.6 percent to $77.3 billion last year.

Verwaayen told a conference call that a rebound in spending by operators in China and continued strength in the United States would lead to higher sales of equipment this year.

He did not provide annual guidance for this year, however.

Shares in Alcatel have risen nearly 30 percent this year, helped by a 2 billion-euro financing package that the company sealed in January, reassuring investors about its balance-sheet strength. But to get the loans, Alcatel had to pledge its portfolio of 29,000 patents and its U.S. unit as collateral, in a sign of lenders' worries about the group's future.

The refinancing deal has given Alcatel-Lucent some breathing space to try to repair its problems, analysts said, a task that will now fall to the next chief executive.

© 2014 Thomson/Reuters. All rights reserved.

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