Alcatel-Lucent SA named former Vodafone Group Plc (VOD) executive Michel Combes as chief, tapping a phone-industry veteran with cost-cutting experience as the French network-equipment maker struggles to return to profit.
The company’s stock rose as much as 3.5 percent after Paris-based Alcatel-Lucent said Combes, 51, will take over on April 1. In his more than 20 years in the telecommunications industry, Combes has reduced expenses at Vodafone and overseen finances at France Telecom SA. (FTE)
The French national will replace Ben Verwaayen, who quit this month after failing to stem losses. Sales are plunging amid competition from Ericsson AB, Nokia Siemens Networks and Asian rivals, and Combes will need to find ways to slash costs amid pressure from the French government, which is also considering investing in the company, said people with knowledge of the deliberations.
“Alcatel’s problems remain,” said Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany. “Combes will need to look at what NSN has done and improve their effort to cut costs further, not an easy task to do in France.”
Nokia Siemens, the joint venture of Nokia Oyj (NOK1V) and Siemens AG, returned to profit after a cost-reduction program including 17,000 job cuts. Alcatel-Lucent’s job eliminations thus far have been less aggressive.
Alcatel-Lucent, which was taken out of France’s CAC 40 index in December, rose as high as 1.18 euros and traded at 1.15 euros at 11:05 a.m. in Paris, valuing the company at 2.7 billion euros ($3.6 billion). The company’s shares have declined for three consecutive years.
Combes will face the task of stemming losses and turning around a company which has consumed 700 million euros of cash annually on average since it was created through the 2006 merger of Alcatel SA and Lucent Technologies.
“His deep knowledge of the industry as well as his experience of major business and financial transformation at a worldwide level will be pivotal in helping the company pursue its aggressive transformation,” Chairman Philippe Camus said in a statement.
Combes is set to spend the first months sounding out stakeholders within and outside Alcatel, and will make decisions on his plans for the company by the end of May, said Simon Poulter, an Alcatel-Lucent spokesman in Paris.
Camus, who has been at the company since 2008 and is seeking to renew his mandate at a yearly shareholders’ meeting in May, hired Verwaayen when he joined Alcatel-Lucent in 2008. The two men took over from Patricia Russo and Serge Tchuruk, who oversaw the merger and couldn’t translate billions of dollars of research to develop equipment used in the newest generation of wireless networks into profit.
Still, earnings also failed to recover under Verwaayen, even as he cut thousands of jobs and sold assets. To support Combes, Alcatel-Lucent today named former BCE Inc. and Nortel Networks Corp. executive Jean Monty vice chairman.
Combes was due to take over Vivendi SA (VIV)’s SFR phone unit last year and didn’t proceed with the move. The executive had been recruited by Vodafone’s Vittorio Colao when he took over as CEO in 2008, and had previously held positions at France Telecom and French mobile-phone tower company TDF.
At Vodafone, Combes oversaw a 2 billion-pound ($3 billion) cost-cutting program, reducing headcount and lowering spending on network gear and logistics. As head of Europe, Vodafone’s largest market by revenue, he also changed pricing across European markets, bringing in data tariffs tied to consumption.
Combes expanded Vodafone’s data and enterprise businesses across Europe and was renowned for his energy and enthusiasm, said an official at the Newbury, England-based carrier who asked not to be identified.
From his days as France Telecom’s chief financial officer, Combes has a reputation for working long hours and was known for calling in meetings early on Sunday mornings, according to people who have worked with him and declined to be named because they aren’t allowed to speak to the press.
France taking a minority stake in Alcatel-Lucent, potentially through the Fonds Strategique d’Investissement state vehicle, is among alternatives being considered by the administration, said a government official, who asked not to be identified as he wasn’t authorized to be cited by the media. France is seeking to protect Alcatel-Lucent’s patent portfolio, partially inherited from New Jersey’s storied Bell Labs research center, which touches on video-conferencing as well as data compression and transfer.
Other plans that have been considered by officials include encouraging a merger between Alcatel-Lucent and Nokia Siemens, or an investment in Alcatel-Lucent’s undersea cable business, said the people.
Even with the government as a major backer, Alcatel-Lucent faces an uncertain future in a highly competitive industry. China’s Huawei Technologies Co. and ZTE Corp. (000063) have taken market share from European competitors, falling short only in the U.S., where security concerns prevent them from winning major network contracts.
Alcatel-Lucent has held exploratory talks on an eventual merger with Finland’s Nokia Siemens, people familiar with the discussion said this month. The deal would reduce the number of major European firms in the sector to two, along with Sweden’s Ericsson.
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