Alcatel-Lucent announced a massive cost cutting and debt reduction plan yesterday (19 June 2013) along with a shift in focus to concentrate on IP Networking and Ultra-Broadband Access, as part of a strategy to reverse seven years of losses.
‘The Shift Plan’, unveiled by new CEO Michel Combes, is a detailed three-year plan to reposition the company as a specialist provider of IP Networking, cloud technologies and Ultra-Broadband Access, the high-value equipment and services that lie at the heart of future high-performance networks. Some 85% of R&D will be concentrated on these areas in 2015 and far less on legacy equipment.
The company will take a clearly differentiated approach to the management of high-growth businesses – Core Networking (IP routing, IP transport, IP platforms and associated services) as opposed to those that will be managed with cash generation as the clear priority and focused on Ultra-Broadband Access.
The ‘managed for cash’ businesses will include key wireless, fixed access and ‘other’ businesses that will play an important role in the company’s medium and long-term development. Specifically, the company expects that this will create enhanced opportunities for its LTE and ‘FTTx’ businesses.
The Core Networking segment is targeting a more than 15% increase in revenues to over Euro 7 billion in 2015 (2012: Euro 6.1 billion); and more than 12.5% (2012: 2.4%) targeted operating margin in 2015.
The Access and ‘other’ segment is targeting over Euro 250 million operating cash flow in 2015 (2012: Euro 115 million cash negative).
The Shift Plan will capitalize on Alcatel-Lucent’s recognized innovation assets, particularly its research laboratories, Bell Labs, while equipping the Company with the appropriate means to fulfil its ambitions.
The key components of The Shift Plan include:
- A refocusing of the Group’s R&D spending on IP Networking and Ultra-Broadband Access with an increased emphasis on co-development with major customers and partners, while at the same time significantly reducing spend on legacy technologies
- Euro 1 billion in targeted reductions in the Group’s fixed cost structure concentrated on actions to reduce sales, general and administrative (SG&A) expenses, refocus R&D and improve operational efficiencies
- Selective asset sales intended to generate at least Euro 1 billion over the period of the plan
- Aiming at reprofiling the Group’s debt (Euro 2 billion) and, once the company has clearly demonstrated the successful execution of The Shift Plan, a future reduction in debt (Euro 2 billion), to guarantee over the long-term financial sustainability.
Commenting on The Shift Plan, Alcatel-Lucent CEO Michel Combes, who was appointed in April 2013, said: ‘We are taking comprehensive action to position Alcatel-Lucent at the heart of the digital ecosystem, a place from which we will be able properly to capitalize on our many strengths.
‘The Shift Plan is fundamentally an industrial plan that also addresses the Group’s operational and financial challenges by putting in place a strong and fully accountable leadership team with clear goals and the appropriate levers to deliver on these goals and on our commitments to all stakeholders.’
He added: ‘With The Shift Plan, which is designed to be self-funding, we are aligning realistic and deliverable ambitions with our core competencies. Over the next three years we are targeting Euro 1 billion of fixed costs savings, and carefully defined and timed asset sales expected to generate at least an additional Euro 1 billion.’
Under The Shift Plan, Alcatel-Lucent is planning to grow its revenues in Core Networking by more than 15%, from Euro 6.1 billion in 2012 to over Euro 7 billion in 2015, while lifting its operating margins in this segment from 2.4% in 2012 to more than 12.5% in 2015.
Over the same period, a strategic focus on cash management in wireless, fixed access and other businesses – emphasizing investment in 4G LTE, vectoring and fiber-based access systems while significantly reducing R&D spending on legacy technologies – is expected to deliver positive segment operating cash flow of more than Euro 250 million in 2015.
New management structure
Pending the appropriate information and consultation processes in a number of countries, Alcatel-Lucent’s management structure will be reorganized into four main business lines:
- IP Routing & Transport
- IP Platforms
- Fixed Networks
These businesses will be supported by group-wide functions focused on Operations, Sales and Strategy & Innovation.
Alcatel-Lucent’s new product and platform emphasis is expected to enable it to target a wider range of customers beyond its traditional base of large telecommunications operators, including Tier 2 to Tier 4 service providers, web-scale customers and extra-large enterprises. Its sales and marketing strategy will be redesigned to take advantage of the new portfolio focus.
No details were provided on possible job losses.