Alcatel-Lucent shifts and optical transport, FTTx shift with it

Alcatel-Lucent (Euronext Paris and NYSE: ALU) CEO Michel Combes today unveiled his vision for how he’ll reshape the company from what he called a "generalist" approach to the market to one that focuses on high-growth areas. The strategy, called "The Shift Plan," will see Alcatel-Lucent focus on IP networking and ultra-broadband access, shedding assets that fall outside these areas. Combes did not identify specific product and service lines that will be targeted for removal. However, initial indications were positive for the company's current optical-related business lines.

The Shift Plan will see the company's activities reorganized into three main areas:

  • Core Networking, which will include IP routing, IP transport (including both terrestrial and submarine optical transport), and IP platforms
  • Access, which will include wireless access, fixed access (including all FTTx activities), patent licensing, and managed services
  • Other, which includes the company’s enterprise and government businesses.

The Core Networking operation will be managed for growth. Combes said he expects revenues within this segment to growth from €6.1 billion in 2012 to €7 billion in 2015. Meanwhile, he said he wants to see the group's operating profit to grow from 2.4% in 2012 to more than 12.5% in 2015. To help achieve these targets, Combes says he plans to boost R&D spending by 8% while cutting SG&A costs by about 13%.

The other two segments will be managed for cash generation. LTE and FTTx will be areas of primary focus here. However, the company plans to take a hard look at its current managed services business. As a result, Combes expects operating cash flows in 2015 of €250 million, versus the negative €115 million from last year.

Overall, the company will embark on a strategic review of all its assets, with an eye toward selling those that don’t fit the new vision. Combes estimates the company will earn as much as 1 billion euros through such sales. Meanwhile, other cost-cutting measures – including reducing the number of markets in which it operates – should save an additional 1 billion euros. The company also plans to "reprofile" €2 billion of its existing debt, with another €2 billion reduction after the new strategy starts to show results.

"Today we are taking comprehensive action to position Alcatel-Lucent at the heart of the digital ecosystem, a place from which we will be able properly to capitalize on our many strengths. The Shift Plan is fundamentally an industrial plan that also addresses the Group's operational and financial challenges by putting in place a strong and fully accountable leadership team with clear goals and the appropriate levers to deliver on these goals and on our commitments to all stakeholders," Combes said via a press release. "With The Shift Plan, which is designed to be self-funding, we are aligning realistic and deliverable ambitions with our core competencies."

To execute this plan, Combes has reshuffled responsibilities among the leadership team. The new lineup includes:

  • Basil Alwan, IP Routing & IP Transport
  • Andrew Mcdonald, IP Platforms
  • David Geary, Wireless
  • Federico Guillen, Fixed Networks
  • Newly hired Philippe Guillemot, Operations
  • Philippe Keryer, Strategy & Innovation
  • Robert Vrij, Sales
  • Nicole Gionet, Human Resources
  • Tim Keller, Legal
  • Paul Tufano, CFO. Tufano will then surrender the CFO position once implementation of The Shift Plan has begun.

The plan received a positive review from Simon M. Leopold, communications equipment analyst and managing director at Raymond James. "Overall, we left the meeting encouraged and hold a favorable bias on our estimates and price target," he wrote in a note this morning. "The strategy makes sense with the dual focus including a profitable growth element based on Internet Protocol (IP) (including optical) and an element managed for cash based on access (fixed and wireless). Management expects 5% annual growth in Core Networks, including double-digit IP sales growth to €7 billion from €6.1 billion in 2012; it forecasts operating margin of 12.5%, up from 2.4% in 2012. Fewer targets were identified for the Access & Other unit, and we assume flat sales and breakeven operating margin. The forecasts implied that 2015 sales could near €15.3 billion, 5% above the €14.6 billion we model for 2014 with an operating margin near 6% vs. the 3% we model for 2014."

Infonetics: Broadband aggregation market can’t beat 2012

First quarter 2013 (1Q13) spending on broadband aggregation equipment was up in North America, but down elsewhere, according to the latest report from Infonetics Research.

Overall, spending on DSL, PON, and FTTH equipment decreased 7% in 1Q13 from 4Q12, to $1.5 billion worldwide, the market research firm said.

“The broadband aggregation equipment market is off to a difficult start this year, with overall revenue down both sequentially and from the year-ago first quarter, though there is significant disparity in results between regions and technologies,” observed Jeff Heynen, who was promoted this week to principal analyst, broadband access and pay TV, at Infonetics.

The Europe, the Middle East, and Africa (EMEA) region was hit hardest, with spending on DSL, PON, and FTTH equipment down 27% from the previous quarter, putting an end to three consecutive quarters of growth, Heynen says. China saw a big drop in EPON spending, but an eighth consecutive quarter of growth for GPON as China Telecom and China Unicom continue their GPON-based FTTH deployments (see, for example, “Alcatel-Lucent to expand broadband FTTH network for China Telecom”).

Meanwhile, North America bucked the trend and avoided its typical first-quarter softness as operators increased spending to fight the aggressive DOCSIS 3.0 initiatives by cable operators, the analyst pointed out.

PON equipment revenue in EMEA dropped 50% in 1Q13, following two quarters of double-digit increases, due to seasonality and the conclusion of initial GPON purchases by Russian and Middle Eastern operators

Despite a 5% decline in worldwide GPON revenue and a 4% decrease in EPON equipment revenue, Huawei maintained its worldwide revenue lead in the overall broadband aggregation equipment market, with 33% market share. Alcatel-Lucent maintained second place in the overall broadband aggregation market, followed by ZTE, which is having a tough few quarters as it gouges prices to win a piece of China Telecom’s FTTX business.

Infonetics’ quarterly broadband aggregation report “1st quarter 2013 (1Q13) PON, FTTH, and DSL Aggregation Equipment and Subscribers” provides worldwide and regional market size, vendor market share, forecasts through 2017, and analysis for EPON, GPON, FTTH, FTTB, PON, and DSL aggregation equipment and subscribers.

Orange To Provide FTTH Networks in Nantes Habitat

Orange and Nantes Habitat, public housing agency of Nantes signed an agreement to deploy high speed broadband through FTTH network to the premises managed by the housing authority. The agreement is valid for six years. More than 24,000 houses can avail high speed broadband services in Nantes. First premises to be offered the high speed broadband service are situated in Beaulieu, Hauts Paves and the old Tobacco Factory. Orange will deploy the fiber to the home broadband in six months to the priority sites thar are shortlisted. The open access network will give choice to the tenants to select their preferred service provider. Orange in France has been aggressive in Fiber rollout. This is recent example for their commitment to work in partnership with real estate players for the deployment of optical fiber networks especially, an open access model to the 46,000 inhabitants of the rental Nantes Habitat.