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Alcatel-Lucent pins growth on R&D, enterprise

Despite selling off its enterprise division in October, Alcatel-Lucent is hoping to grow its business in the enterprise sector, and other non-service provider sectors.
Written by Josh Taylor, Contributor on

Alcatel-Lucent CEO Michel Combes has said that the next phase for the networking company's growth will be pinned on picking up customers in non-service provider sectors, despite the company selling its enterprise division last month.

In his keynote address to the Alcatel-Lucent Technology Symposium in New Jersey on Wednesday, Combes said that after 18 months, the company has exited the first chapter of the company's "Shift Plan", which will see Alcatel-Lucent reduce its headcount by 10,000 at the end of 2015.

Combes said that Alcatel-Lucent is moving from being a generalist company to a specialist in IP, cloud, and transmission technologies. To do that, the company needs to see a reduction of €950 million, and Combes said that Alcatel-Lucent has already realised €645 million in savings in fixed costs.

"We are only half-time in the journey, but we have already shown we are ahead of plan," he said.

"Twenty months ago, the company was in a very different situation; we were in financial distress. The company was nearly bankrupt. I am happy to report today that the refinancing has been complete. Raised €5.5 billion in the last 12 months ... in order to completely fix the balance sheet of the company. We have a strong balance sheet."

In late October, Alcatel-Lucent reported that for its third quarter, revenue for the company fell by 6 percent last year to €3.25 billion, with gross margins increasing to 34 percent, and reported net income at an €18 million loss, an improvement on the €200 million loss for the same period last year.

On Wednesday, Combes said that as of August, Alcatel-Lucent now has full ownership of its assets that were used to provide security for loans the company needed to restructure, and that the company is on track to be cash positive by next year, for the first time since 2006.

"Now we are back in the game, we have the ability to regain the leadership position we had in the past and contribute to the shape of the industry," he said.

"Networks are really the foundation of our digital economy, and are becoming a key part of the business model of every industry. Network is back."

Connectivity remains the "bread and butter" for Alcatel-Lucent, he said, with the company focusing on advances in fixed-line and wireless networks such as FttX, including vectoring for VDSL services, and the upcoming G.fast technology, all aimed at improving speeds across legacy copper networks with fibre components. The network core is also important, with Alcatel-Lucent focusing on growing customer demand to manage networks to scale.

"Our customers need a network that can scale quickly, and break down silos in between the different technologies," Combes said.

"SDN [software-defined networking] makes network resource as easily consumable as compute and storage. We strongly believe that the answer to complexity is around NFV [network functions virtualisation] and SDN combined."

Although Alcatel-Lucent was reducing its size globally, investment in the company's Bell Labs research division remains at €2.2 billion year on year, Combes said, with divisions opening in Israel and the UK.

"You can expect a very strong Bell Labs in the next few years, because that is a key differentiator for us," he said.

Combes indicated that research had shifted from legacy products to new markets, including challenging the IP market and virtualised network services and software-defined virtual private networking.

"It is going to completely change the way networks are operated in the enterprise space," Combes said.

Despite the company selling off its enterprise division to China Huaxin Post & Telecommunication Economy Development Center for €202 million in October, Combes said Alcatel-Lucent would seek to re-enter the enterprise space, and indicated that the company would look to form more technology partnerships.

"We used to have technology partnerships but we were a bit reluctant time to time to be too open," he said.

But this had changed with a number of partnerships, including with Intel and HP, and a new partnership with semi-conductor company Freescale on research and development.

"We cannot do it all on our own. We are appealing for all of those big tech companies to work with us and create key differentiators."

Alcatel-Lucent is also focusing on its research base to provide services and consulting to industry, particularly around the design of networks, the technology that should be used, and how network companies can transition from copper to fibre.

Combes said that Alcatel-Lucent's culture needs to change to become a lean organisation with a "disruptor" ethos, but, after the first phase of the Shift Plan, the company now has the basis to grow.

"It was important to make sure we had strong foundations. Time to figure out how we can get profitable growth," he said.

"We are back in this game, and we are back in this game to win. Chapter two is going to give us all what we need to be a winner in the next coming five years."

Josh Taylor travelled to New Jersey as a guest of Alcatel-Lucent.

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