Alcatel-Lucent Chiefs to Step Down CEO and Chairman Leaving Amid Losses and Investor Pressure

By David Jolly

Alcatel-Lucent, one of the world’s largest suppliers of telecommunications equipment, said Tuesday that the architects of the trans-Atlantic merger that formed the company – the chief executive, Patricia Russo, and Serge Tchuruk, the chairman – would step down, following calls for their resignation from investors.

Shareholders in the company, formed from the November 2006 combination of Lucent Technologies, based in Murray Hill, New Jersey, and Alcatel, based in Paris, had grown increasingly impatient with Russo and Tchuruk. Many analysts were skeptical from the start that the combination would work, and the appointment as chief executive of Russo, the former Lucent chief executive, who does not speak fluent French, struck many as a recipe for trans- Atlantic cultural clashes. The company has not produced a quarterly profit since the merger.

“We’ve been of the view that the management team was not up to a reorganization of this scale,” said Richard Windsor, an analyst at Nomura Securities in London. “That’s been borne out by the history.”

In the latest of a series of disappointing earnings reports, the company posted on Tuesday a second-quarter net loss of euro 1.1 billion, or $1.7 billion, compared with a euro 586 million loss in the April-June period last year. The loss resulted in large part from an euro 810 million write-down related to the company’s wireless network business in North America.

The shares of the combined company, which trade in Paris, are down more than 60 percent in the last year, giving the company a market value of about euro 8.9 billion. The shares rose 2.1 percent in afternoon trading Tuesday.

Analysts say the cost benefits and other synergies that Lucent and Alcatel promised at the time of the merger have yet to materialize. At the annual shareholders’ meeting in May, investors called for Russo’s resignation.

“The problem is cultural,” Johann Gunther, a former member of the board of Alcatel Austria, said in November. “The French and the Americans have hugely different ways of doing business. Within Alcatel-Lucent, there is resistance to making the tough decisions to rationalize the business because each side is protecting its own turf.”

Alcatel-Lucent said Tuesday that as part of the management changes, which include a reduction in the size of its board, Henry Schacht, a former chief executive of Lucent Technologies, would also step down immediately. The shake-up at the top will “pave the way for a fully aligned governance and management model going forward,” the company said. It said Tchuruk would step down by Oct. 1, while Russo would leave by the end of the year, remaining in place until a successor is found.

“The culture of this company must be preserved,” Windsor, the Nomura analyst, said. “Alcatel-Lucent is a French company. So the new CEO needs to speak French, at the very least.”

Tchuruk, in a press statement, hinted that there would be a cultural change.

“The merger phase is now behind us,” he said. “I am proud that Alcatel-Lucent has become a world leader in a technology which is transforming our society. It is now time that the company acquires a personality of its own, independent from its two predecessors.”

Russo, in the same statement, said she was pleased with the progress the company was making, but that it was the right time to step down. “The company will benefit from new leadership aligned with a newly composed board to bring a fresh and independent perspective that will take Alcatel-Lucent to its next level of growth and development in a rapidly changing global market,” she said.

Analysts said Russo’s decision to leave probably also was based on a calculation that she stood to lose about euro 6 million worth of stock tied to performance targets if she stayed past the end of the year, when her compensation package is due to be revised.

Lucent said the write-down resulted mostly from the decline of its CDMA network business in the United States, which declined at a faster-than-expected pace in the quarter as “a key customer in North America” cut its capital spending. It did not identify the customer. Networks based on Code Division Multiple Access, a mobile-network technology that was a major part of the portfolio that Lucent Technologies brought to the merger, are losing ground globally to GSM, or Global System for Mobile Communications, and another standard called CDMA-A.

Spending on wireless broadband networks and optical fiber-based systems is rising faster than investment in the traditional copper- based, fixed-line DSL networks, where Alcatel-Lucent has been the market leader, according to Synergy Research.

The company said revenue fell 5.2 percent from a year earlier, to euro 4.1 billion. It posted adjusted operating profit of euro 93 million, better than the euro 64 million expected by analysts polled by Reuters. But the euro 1.1 billion net loss, which works out to 49 euro cents per diluted share, or 77 U.S. cents per American depositary share, dwarfed the loss of euro 135 million analysts polled by Bloomberg News had predicted.

Alcatel-Lucent said in November that would cut 4,000 jobs.

Originally published by The New York Times Media Group.

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