Alcatel-Lucent Bids Adieu to CEO and Chairman

| Jul 29, 2008 | Telecom Infrastructure | Flash Analysis

| Analysts: Peter Jarich, Ron Westfall

Current Perspective: Positive
Vendor Importance: High
Market Impact: Moderate

Event Summary

July 29, 2008 – Alcatel-Lucent announced CEO Pat Russo and Non-Executive Chairman Serge Tchuruk will be leaving the company. Specifically, Tchuruk will step down on October 1, 2008 while Russo will remain the company’s CEO until a new CEO is in place – leaving no later than the end of the year. Separately, Alcatel-Lucent will commence the search for Russo and Tchuruk’s replacements while moving to restructure its Board of Directors, reducing the size of its membership and introducing new members over time.

Analytical Summary

• Current Perspective: Positive on the impending departure of CEO Pat Russo and Non-Executive Chairman Serge Tchuruk from Alcatel-Lucent, because the announcement ends speculation and marks a new course for the company. Along with plans to reorganize Alcatel-Lucent’s Board, a new CEO and chairman should represent a unifying force that brings the company together, helps it move beyond investor concerns over past financial performance and supports a focus on new market opportunities – all while placating investors eager for a change at the top. At the same time, while the move should end up being a net positive for Alcatel-Lucent, there is no denying that the two leaders are departing because the company did not achieve all of the critical success factors outlined when it was initially formed. What’s more, the management shake-up, though expected, could introduce unwanted confusion into the company’s ranks just as it claims to be moving beyond its “merger phase”, especially if Alcatel-Lucent opts to bring in new a CEO (and chairman) from outside the organization.

• Vendor Importance: High to Alcatel-Lucent, because less than stellar financial performance driven by a complex merger and a flattening telecom market in key sectors had eroded market confidence in the vendor’s post-merger strategy. Bringing in a new perspective is critical for helping the company to put the merger behind it and move forward on shoring up its position in the market. Specifically, moving quickly to increase internal cohesion within the two former titans will continue to be critical in helping the vendor stabilize revenue growth and profitability – all of which are critical to long-term competitiveness in the eyes of customers and ongoing R&D efforts.

• Market Impact: Moderate on the telecom infrastructure market since most of Alcatel-Lucent’s competitors and customers had been expecting such a move. While the exact timing is a bit of a mystery, intense investor pressures virtually ensured that a management change was forthcoming. Of course, to the extent that new management can revitalize the company (extending its gains in the GSM/WCDMA, professional services, IP service edge, and enterprise segments, for example, while minimizing losses in areas such as fixed access and CDMA2000), it could help the company to become a more effective competitor over the long-term.

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