Skip to main content

The Globe and Mail

Alcatel CEO to quit after $1.9-billion loss

Alcatel-Lucent chief executive officer Ben Verwaayen.

© Philippe Wojazer / Reuters/REUTERS

Telecom equipment maker Alcatel-Lucent said its chief executive officer was leaving after it swung to a net loss of €1.37-billion ($1.9-billion U.S.) 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."

Story continues below advertisement

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 per cent since then, destroying about €7-billion 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 per cent 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, which laid off a quarter of its staff and sold off large chunks of the business to get back to profitability last quarter.

Story continues below advertisement

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.

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 per cent to €14.45-billion last year.

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

It burned through €679-million in cash for the year.

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

Story continues below advertisement

Sales were largely in line with analysts' estimates for €4.12-billion 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 "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.

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 per cent to $79-billion in 2013, after falling 6.6 per cent 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 per cent 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.

Report an error

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨