=DJ THE SKEPTIC: Dialing Up Growth At Alcatel-Lucent
By Matthew Curtin A DOW JONES NEWSWIRES COLUMN
PARIS (Dow Jones)--When it comes to cutting costs in the telecoms industry you could hardly do better than entrust the job to Alcatel and Lucent.
However sacrosanct parts of Lucent's U.S. activities are and however difficult laying off workers in France can be, the two companies survived the tech bust - evidence enough of their cost-cutting prowess.
So while stripping another $1.7 billion out of the combined business won't be easy - Lucent, after all, hasn't got any more luxury golf clubs to ditch - investors can take heart from the record of Lucent's Patricia Russo and Alcatel's Jean-Pascal Beaufret, named as CEO and CFO respectively of the combined entity.
But that mightn't be enough to do more than protect existing levels of lackluster operating profitability, remembering that Lucent's healthcare obligations present a potentially deadly drain on earnings.
Some of the sales momentum the companies have enjoyed recently risks slowing sharply, based as it has been on Lucent's sale of CDMA kit - the wireless standard that's essentially limited to America - and Alcatel's successful exploitation of old GSM technology in emerging markets.
But as resurgent as the telecoms market as a whole is, competition is driving prices for new and old technology down. Huawei and ZTE have yet to make inroads in North America, Lucent's lucrative home patch, in the way they have in Europe. That's sure to come. ZTE, for example, has a WiMax partnership with Intel and a U.S. R&D team in place.
For all the effort Alcatel and Lucent have put into becoming providers of added-value telecommunications services, it's been a hard slog to date, as they compete with IT rivals in a new area. And Alcatel-Lucent's equipment-making competitors are wise to the same opportunities.
Alcatel and Lucent have both hacked away at R&D spending as much as general administrative expenses in the past. The big challenge today will be making a smaller combined R&D effort go a lot further than it has of late. And here melding Bell Labs' lingering reputation for cutting-edge research with Alcatel's development expertise will be delicate.
All told, while Alcatel and Lucent have bought themselves a few year's breathing space, assuming Alcatel's effective takeover of its U.S. rival is executed smoothly, their future as a growth company is far from set in stone.
(Matthew Curtin has been a financial news reporter since 1990, and has reported on international finance and business for Dow Jones Newswires - from South Africa, Singapore and now Paris - since 1994. He can be reached at +331 4017 1740 or by e-mail: matthew.curtin@dowjones.com)
(END) Dow Jones Newswires
04-03-06 0732ET
Copyright (c) 2006 Dow Jones & Company, Inc.
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