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Alcatel-Lucent realigns enterprise biz after China Huaxin buyout

Executives from the parent company as well as newly separated spinoff explain how both entities will continue to focus on the enterprise market by targeting different customer segments.
Written by Eileen Yu, Senior Contributing Editor

Six months after it was sold to a Chinese investor, Alcatel-Lucent's former enterprise unit says it is now debt-free and back on the growth path with a strong focus on the small and midsize business (SMB) and large enterprise markets.

Alcatel-Lucent in October 2014 sold its enterprise division to China Huaxin Post & Telecommunication Economy Development Center for 202 million euros (US$255.58 million), but retains a 15 percent stake in the company. The Chinese investment firm owns an 85 percent stake in the company, which has been incorporated in France and is no longer part of the Alcatel-Lucent Group.

In an interview with ZDNet, Matthieu Destot, Asia-Pacific vice president for Alcatel-Lucent Enterprise, said the division had been growing and was profitable, but its profits were channeled back to its former parent company.

Alcatel-Lucent Group was on the brink of bankruptcy and slashed some 15 percent of its global workforce in the last two years, with 10,000 job roles to be cut by end-2015 across Europe, Asia-Pacific, and the United States.

Now a separate entity, Alcatel-Lucent Enterprise is debt-free and can invest its future in a different direction from its former parent, said Destot. The company's global strategy looks to focus its portfolio on communications, network, and cloud, as well as achieve geographical growth. Pointing to its majority shareholder, he noted that this relationship opens up significant opportunities in China, particularly since several U.S. players were struggling in the market.

He added that its legal and executive teams were based in France, and it also was granted approval by the U.S. government to sell its products to the defence sector. These put the company in good stead to address markets in the three key regions of Europe, U.S., and Asia-Pacific, especially China, he said.

Last week, it was appointed one of China Telecom's three network suppliers to deploy the telco's LTE mobile ultra-broadband access network in 40 cities in the country, including Shanghai, Hunnan, and Jiangxi.

Alcatel-Lucent Enterprise is also looking to achieve non-organic growth through acquisitions as well as joint ventures, particularly, in software-defined networking and datacenter technologies, Destot said.

Alcatel-Lucent eyes "extra large enterprise" market, spinoff goes for SMBs

In addition, the company will target the SMB market with products specifically designed and priced to address the needs of these businesses, he said. By end-2015, it wants this market to account for 20 percent of its Asia-Pacific revenue, up from 10 percent last year, he noted.

The company also will be targeting the mid to large enterprise segments by focusing on specific verticals in certain markets, such as hospitality in Thailand, Indonesia, and India, as well as education in Singapore and Australia.

Like several other market players, Alcatel-Lucent Enterprise will be looking to tap opportunities in cloud and soon announce new partnerships in Singapore and Malaysia to support its efforts in this space.

It is targeting to grow its Asia-Pacific revenue by 19 percent this year, and expand its headcount by 25 percent. Destot said: "We're a brand new company to address the SMB and large enterprise segments, and targeting to double our revenue in the next five years.

Asked if Alcatel-Lucent Enterprise would compete with its former parent since both targeted the enterprise market, he noted that the latter was focused on providing carrier-grade equipment. This meant its targeted customer segments would differ, he said, adding that the two companies currently have a distribution agreement in which both would deliver products to the other's client base.

"Alcatel-Lucent is dedicated to the carrier business, so we actually complement each other," Destot said. "They have carrier-grade products that can be appealing to our customers and we have products designed for the enterprise market that will appeal to the carrier market."

In a separate interview with ZDNet, Michael Higgins, Alcatel-Lucent's Singapore and Brunei president and managing director, explained that its former enterprise unit was focused primarily on the PBX and voice business, with the majority of their product portfolio comprising enterprise switches. In comparison, the group's product range was geared toward carriers and service providers.

With the sale of its enterprise business, Alcatel-Lucent will continue its focus on the carrier business and extend this to include the "very large enterprise" segment, which would comprise market players such as Google and Amazon Web Services and large banks that typically run large server farms, data centers, and "massive networks", Higgins said.

"Having divested the enterprise business, we've now created an 'extra large enterprise' unit called Tech XLE to focus on this market segment," he revealed, noting that it was the size of the networks--rather than the headcount--which would define potential customers in this space.

He further acknowledged that the past couple of years had been difficult for Alcatel-Lucent, but said its CEO Michel Combes had pulled the company out of the downward spiral by resolving its financial woes.

"When he took over, the situation was quite serious. We had to put some of our intellectual property as collateral to secure a bank loan," Higgins said, adding that the company now was on track to hit its financial targets.

While it looks to put itself back on the growth path, however, the newly-formed Alcatel-Lucent Enterprise will have to articulate its status as a separate entity to the market.

Asked if its history would complicate the company's efforts to achieve growth, Destot saw no issues and said relationships between the two remained good, especially with the distribution agreement. Furthermore, the separation helped clearly define its market play.

"When we were part of the group, we always had questions about our focus on the enterprise segment since the main group was so focused on the carrier business," he said. "Now, we've answered those questions and in terms of customer messaging, it's clearer because we can present ourselves as a company dedicated to the enterprise market."

While he acknowledged that retaining Alcatel-Lucent in its name might wrongly suggest it still belonged to the group, Destot said it also offer some benefits since it was a widely recognized name in the industry.

He added that the company would continue to operate under the brand, at least, for this year.

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