Alcatel-Lucent Continues on its Whirlwind Set of Strategic Shifts – Hedges for No Surprises During a Lean 2009

| Dec 15, 2008 | Telecom Infrastructure | Competitive Intelligence Report

| Analysts: Peter Jarich, Ron Westfall

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

Event Summary

December 12, 2008 – Alcatel-Lucent announced its strategic plan that will focus 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. Specifically, the company announced plans to boost investment in LTE, W-CDMA, enhanced packet core and open application enablers. It also plans on streamlining product offerings such as CDMA 1x, GSM, ATM, ADSL, DLC and legacy applications.

Analytical Summary

• Current Perspective: Neutral on Alcatel-Lucent’s newly unveiled strategic transformation and realignment of operations. Recently appointed CEO Ben Verwaayen fundamentally minted the plan and deserves kudos for putting his stamp on the company’s strategy as well as taking a cautious approach toward the company’s operating profit levels for 2009. At the same time, it’s only logical to put increased emphasis on addressing operator pain points in areas such as more aggressive support of Web 2.0/3.0 open development environments and monetizing over-the-top (OTT) applications. However, the new plan lacked details on how application enablement would actually take place, nor did it represent any dramatic difference from Alcatel-Lucent’s previous cost-cutting and reorganization initiatives since the company’s inception in 2006, all while reflecting the reality that it needs to continue avoiding abrupt pullbacks in legacy areas.

• Vendor Importance: High to Alcatel-Lucent since the company needed to demonstrate that the recent managerial shakeups, including the appointment of Ben Verwaayen as CEO, would make good on the board’s desire to see changes in corporate direction and vision. This included further clarifying the company’s direction in areas such as streamlining the Carrier Product Group from six divisions down to four, completing platform rationalization programs, and consolidating global R&D centers. Of course, the new strategic plan will generate varying levels of impact within specific technological areas of focus and business units, thus making proper execution critical to the ultimate success, or failure, of the company’s newly announced initiatives.

• Market Impact: Moderate to high on the overall telecom infrastructure realm, since Alcatel-Lucent commands the market presence to oblige rivals to respond to its most recent realignment and strategic plan – if only to highlight their own initiatives to support new application models and prepare for economic doldrums. At the same time, however, the lack of a major directional shift for Alcatel-Lucent suggests that there will be relatively little for competitors to actually respond to.

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Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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Recommended End User / Customer Actions

• Service providers and enterprises need to continue coordinating product and technological evolution efforts with Alcatel-Lucent, including securing assurances from Alcatel-Lucent for service support, such as warranties, lifecycle road maps in the product line areas such as CDMA 1x, GSM, ATM, ADSL, DLC and legacy applications that were identified for rationalization.

• Service providers and enterprises need to continue evaluating Alcatel-Lucent’s overall telecom and enterprise infrastructure proposition in light of the vendor’s ongoing reorganizational efforts that continue to put emphasis on areas such as headcount reductions and specific R&D pullbacks. While still one of, if not, the largest telecom equipment vendor in the world, Alcatel-Lucent has been systematically cutting headcount and expenses for the past two years running. Logic dictates that at some point the cumulative effect of such pullbacks will begin to impair product and/or customer support capabilities.

• As Alcatel-Lucent looks to prove its mettle as an application supporter, customers need to leverage the multiple opportunities this presents. On one hand, the company should be willing to offer attractive terms in order to win solid reference customers attesting to its capabilities. On the other hand, customers exposed to cutting-edge applications could gain an edge over competitors with less of an applications focus.

• Service providers and enterprises need to press Alcatel-Lucent do better identify what it means by tapping into new market drivers to combat the expected down-turn in traditional carrier spending in 2009. Tapping new drivers would indicate that Alcatel-Lucent plans to add value to its customers in ways that are not being properly addressed by competing vendors. If so, then carriers should stand to benefit by having under-served needs met. Since Alcatel-Lucent did not adequately address these “new” drivers in its press conference, operators should be eager to hear more from the vendor on the specifics of its plan.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

Recommended Competitor Actions

| Client access - Full report Telecom Infrastructure | More information

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