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Paris, December 12, 2008 - Alcatel-Lucent (Euronext Paris and NYSE:
ALU) today announced its strategic plan to enable service providers,
enterprises and end-users to take greater advantage and gain more value out of
today’s web environment as well as its next evolution.
Strategy
Alcatel-Lucent’s plan is to combine the trusted capabilities of the network
environment with the creative communications services of the web (Web 2.0, Web
3.0 and beyond). This transformation will allow billions of customers to use
millions of websites from any device guaranteeing security, quality, privacy
and billing integrity. The overall service experience for end-users – consumers
and businesses – will be improved and greater value will be created for every
player in the industry.
This strategy requires providing an open environment, which does not exist
today, where all these trusted capabilities can be available between the
network and “over-the-top” applications typical of Web 2.0. It is a challenge
that Alcatel-Lucent is uniquely positioned to address, with its long-standing
relationship with network-based service providers and thousands of enterprises
worldwide, its capabilities in delivering fixed and mobile broadband, flat-IP
networks and its end-to end integration capabilities around the globe.
In order to achieve this strategy, Alcatel-Lucent will undergo a major
strategic transformation and will take some significant steps to realign its
operations. The company will be focusing on three markets: service providers,
enterprises, and selected verticals and on four key areas of investment: IP,
Optical, mobile and fixed Broadband and Applications enablement.
“We will work closely with our service provider, enterprise customers and
applications providers to make this strategic transformation happen. We want to
stimulate a sustainable business model for the industry that will fuel
innovation and the capital investment required to expand the overall web
experience to more people and businesses. Alcatel-Lucent is committed to
innovate, collaborate and partner to achieve this goal”, said Ben Verwaayen,
CEO of Alcatel-Lucent.
Product portfolio
Alcatel-Lucent will accelerate the shift of investments towards
next-generation platforms:
- by reinforcing areas of leadership (IP, Optics, broadband access, IMS core,
CDMA EV-DO)
- by boosting investment in focus areas (LTE, W-CDMA, Enhanced packet core,
Open application enablers)
- by streamlining its product offerings on mature portfolios such as CDMA 1x,
GSM, ATM, ADSL, DLC and legacy applications.
Alcatel-Lucent will be partnering, co-sourcing and participating in the
consolidation of the industry to reduce spending for WiMAX, CPE, classic core,
non-IMS based fixed NGN portfolio and some legacy applications.
Other actions will be taken to have a more agile R&D, such as further
simplifying the Carrier Product Group from 6 to 4 divisions, completing
platform rationalization program for W-CDMA and NGN as well as consolidating
global R&D centers.
Cost reduction initiatives
Alcatel-Lucent will initiate a set of strong actions designed to reduce the
company’s break-even point by Euro 1 billion per year in both 2009 and 2010.
These actions will aim to:
• Improve gross margin by
reducing its manufacturing, supply chain and procurement costs, introducing
stricter pricing discipline and over time, improving the product mix.
• Enhance R&D efficiency
by focusing on four key segments (Optical, IP, broadband and Applications
enablement) and partnering or rationalizing spend in other areas.
• Materially reduce SG&A
expenses both in absolute terms and as percentage of revenue, through the
de-layering of the organization and the elimination of sales duplication
between product groups and regions.
As a part of these initiatives, Alcatel-Lucent expects to reduce the number of
managers by approximately 1,000 and the number of contractors by approximately
5,000. The company will also complete its existing restructuring initiatives as
well as seek savings in real estate, support functions and discretionary
spending.
Altogether, Alcatel-Lucent expects that, by the fourth quarter 2009 on a run
rate basis, it should achieve total savings of Euro 750 million at constant
exchange rate, of which approximately one-third in the cost of goods sold and
two-thirds in R&D and SG&A expenses.
Guidance and targets
For full year 2009, Alcatel-Lucent expects the market for telecommunications
equipment and related deployment services to be down between 8% and 12% at
constant exchange rate and expects to maintain a stable market share. As a
result of the expected decline in volumes and given that the improvement in
gross margin will only materialize towards the end of the year, the company’s
initial forecast is to achieve an adjusted operating profit around break-even
in 2009.
In 2010, with the set of actions described above, Alcatel-Lucent is
targeting to achieve a gross margin in the mid thirties range and an operating
margin in the mid single-digit range.
Looking beyond, the goal of the company is to achieve a gross margin in the
mid to high thirties range and an operating margin in the mid to high
single-digit range in 2011.
“The new management team is committed to rapidly executing this new strategy
and leveraging the new streamlined organization. We are focused on delivering
results and restoring profitability. I am confident we have now the strategy
and the strengths to succeed,” said Ben Verwaayen, CEO of Alcatel-Lucent.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
Except for historical information, all other information in this press
release consists of forward-looking statements within the meaning of the US
Private Securities Litigation Reform Act of 1995, as amended. These forward
looking statements include statements regarding the future financial and
operating results of Alcatel-Lucent such as (i) expected gross margin
improvements in 2009 and 2010, (ii) a lowering of the Company’s breakeven point
by Euro 1 billion in both of 2009 and 2010, (iii) a decline in revenues in 2009
and (iv) breakeven adjusted operating profit in 2009. Words such as "expects,"
"anticipates," "targets," "projects," "intends," "plans," "believes,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements which are not statements of historical
facts. These forward-looking statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to assess. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. These risks and uncertainties are based upon a number of important
factors including, among others: our ability to execute on our new strategic
plan; our ability to operate effectively in a highly competitive industry with
many participants; our ability to keep pace with technological advances and
correctly identify and invest in the technologies that become commercially
accepted; difficulties and delays in achieving synergies and cost savings;
exposure to the pricing pressures in the regions in which we sell; the pricing,
cost and other risks inherent in long-term sales agreements; exposure to the
credit risk of customers; reliance on a limited number of contract
manufacturers to supply products we sell; the social, political and economic
risks of our global operations; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes to
existing regulations or technical standards; existing and future litigation;
difficulties and costs in protecting intellectual property rights and exposure
to infringement claims by others; compliance with environmental, health and
safety laws; the economic situation in general (including exchange rate
fluctuations) and uncertainties in Alcatel-Lucent’s customers’ businesses in
particular; customer demand for Alcatel-Lucent’s products and services;
international growth; conditions and growth rates in the telecommunications
industry; and the impact of each of these factors on sales and income. For a
more complete list and description of such risks and uncertainties, refer to
Alcatel-Lucent's Form 20-F for the year ended December 31, 2007, as well as
other filings by Alcatel-Lucent with the US Securities and Exchange Commission.
Except as required under the US federal securities laws and the rules and
regulations of the US Securities and Exchange Commission, Alcatel-Lucent
disclaims any intention or obligation to update any forward-looking statements
after the distribution of this news release, whether as a result of new
information, future events, developments, changes in assumptions or
otherwise.
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