Chairman Tchuruk, CEO
Russo To Step Down From Alcatel-Lucent
By Leila Abboud and Jethro Mullen
The Wall Street Journal
Tuesday, July 29, 2008
PARIS -- The architects of the trans-Atlantic merger that
two years ago are stepping aside, leaving a
telecommunications-equipment firm still struggling to figure out
how to survive in an industry plagued by increasingly brutal
competition and eroding profits.
Chief Executive Patricia Russo will leave the company by
year-end as she helps look for a successor, Alcatel-Lucent said
in a statement Tuesday after reporting a net loss for the
quarter ended June 30 of €1.1 billion ($1.73 billion) compared
to a net loss of €586 million a year earlier. Chairman Serge
Tchuruk will step down on Oct.1.
Alcatel-Lucent CEO Patricia Russo, right, and Chairman Serge
Tchuruk talk during a shareholder meeting. In May, shareholders
approved a resolution that made it easier to remove the merger
"Our strategy is taking hold, and our results are demonstrating
good operational progress. That said, I believe it is the
right time for me to step down," Ms. Russo said in the
The exits of Ms. Russo and Mr. Tchuruk will bring to a close a
painful first act for the telecom-equipment giant, which was
created in 2006 by merging the Paris-based Alcatel SA and the
Murray Hill, N.J.-based Lucent Technologies.
Since the merger, Alcatel-Lucent has reported six consecutive
quarters of losses, and its market capitalization has been cut
Investors and analysts have been urging the company to remove
Ms. Russo for more than a year, and news of her and Mr.
Tchuruk's departure buoyed the company's stock, which is traded
on the Paris
exchange. Alcatel-Lucent shares rose 2.4% to €3.92 in
Yet some expressed concern that no successor had yet been found,
and doubted whether the change in leadership meant that
Alcatel-Lucent's fortunes would improve.
"I don't think it should be seen as good news," said WestLB
analyst Thomas Langer. "What you need in such difficult times is
true leadership." Mr. Langer, who has a "sell" rating on
Alcatel-Lucent stock, said no potential replacements spring
immediately to mind.
When the merger was announced two years ago, Ms. Russo and Mr.
Tchuruk had touted the link-up as a way to gain scale and cut
costs in order to better compete with new low-cost manufacturers
emerging especially from Asia.
Another factor that had pushed the two companies to merge:
telecom operators such as
Inc. and Spain's
SA were also consolidating, so gear makers had to follow suit to
try to maintain negotiating power with their customers.
But right away, Ms. Russo found herself struggling to integrate
the two firms. The expected cost cuts, especially in
research and development, were much more difficult to wring out
To make matters worse, Alcatel-Lucent competitors such as
Telefon AB L.M. Ericsson
went on the attack, trying to steal customers while the
Franco-American firm was distracted.
Alcatel-Lucent was forced to cut prices and even take some
losing contracts last year to keep a foothold in important
emerging markets like China and India. The company issued
repeated revenue and profit warnings, losing the confidence of
some analysts and shareholders.
Pressure on Ms. Russo increased last fall, when the French press
was awash with reports that the board was growing concerned
about the firm's woes. Ms. Russo weathered the storm,
getting the board to approve a new turnaround plan that included
a new streamlined management team.
Since then, however, the company's performance has continued to
founder. Alcatel-Lucent's €1.1 billion quarterly loss
announced on Tuesday was partly the result of a €810 million
goodwill write-down related to one of the company's wireless
divisions. Revenue declined 5.2% to €4.1 billion, hurt by
the dollar's weakness in relation to the euro.
The picture doesn't look much brighter for the rest of the year,
as economic woes make telecom operators reluctant to spend to
upgrade their networks.
The company maintained its 2008 outlook of a 2% to 5% decline in
revenue, an adjusted operating margin in the mid single-digit
range and an adjusted gross operating margin "in the
mid-thirties." Alcatel-Lucent still expects the overall
telecom equipment and services market to remain flat in 2008.
In its statement, the company also said it would overhaul its
board to bring in fresh blood and reduce its size. One
director, Henry Schacht, who preceded Ms. Russo as CEO at the
former Lucent, will resign from the board immediately, the
to Leila Abboud at
email@example.com and Jethro