Alcatel-Lucent (Euronext Paris and NYSE: ALU) today announces ‘The Shift Plan’, a detailed three-year plan to reposition the Company as a specialist provider of IP Networking and Ultra-Broadband Access, the high-value equipment and services that lie at the heart of the high-performance networks of tomorrow.
The Shift Plan will mobilize the full range of Alcatel-Lucent’s assets and resources to achieve a decisive shift in the Group’s industrial focus that will concentrate the Company on the priorities of its telecommunications customers as they deploy next-generation networks to address the explosive growth in bandwidth-hungry data traffic. This new focus on the fast-growing business segments of IP Networking, cloud technologies and Ultra-Broadband Access will be delivered by a management team organized around full profit-and-loss (P&L) and cash accountability.
Importantly, The Shift Plan entails a clearly differentiated approach to the management of high-growth businesses – Core Networking – as opposed to those that will be managed with cash generation as the clear priority. The ‘managed for cash’ businesses will include key wireless, fixed access and other businesses that will play an important role in the Company’s medium and long-term development. Specifically, the Company expects that this will create enhanced opportunities for its LTE and ‘FTTx’ businesses.
The Shift Plan will capitalize on Alcatel-Lucent’s recognized innovation assets, particularly its research laboratories, Bell Labs, while equipping the Company with the appropriate means to fulfill its ambitions.
The key components of The Shift Plan include:
- A refocusing of the Group’s R&D spending on IP Networking and Ultra-Broadband Access with an increased emphasis on co-development with major customers and partners, while at the same time significantly reducing spend on legacy technologies
- Euro 1 billion in targeted reductions in the Group’s fixed cost structure concentrated on actions to reduce sales, general and administrative (SG&A) expenses, refocus R&D and improve operational efficiencies
- Selective asset sales intended to generate at least Euro 1 billion over the period of the plan
- Aiming at reprofiling the Group’s debt (Euro 2 billion) and, once the Company has clearly demonstrated the successful execution of The Shift Plan, a future reduction in debt (Euro 2 billion), to guarantee over the long-term financial sustainability.
Commenting on The Shift Plan, Alcatel-Lucent CEO Michel Combes said: “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.”
Michel Combes added: “With The Shift Plan, which is designed to be self-funding, we are aligning realistic and deliverable ambitions with our core competencies. Over the next three years we are targeting Euro 1 billion of fixed costs savings, and carefully defined and timed asset sales expected to generate at least an additional Euro 1 billion.”
Under The Shift Plan, Alcatel-Lucent is planning to grow its revenues in Core Networking by more than 15{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3}, from Euro 6.1 billion in 2012 to over Euro 7 billion in 2015, while lifting its operating margins in this segment from 2.4{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} in 2012 to more than 12.5{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} in 2015.
Over the same period, a strategic focus on cash management in wireless, fixed access and other businesses – emphasizing investment in 4G LTE, vectoring and fiber-based access systems while significantly reducing R&D spending on legacy technologies – is expected to deliver positive segment operating cash flow of more than Euro 250 million in 2015.
Michel Combes, who was appointed CEO on April 2, 2013, also announced that effective July 1, Philippe Guillemot is joining Alcatel-Lucent’s Leadership team as Senior Executive Vice President, Operations. Philippe Guillemot is a highly-regarded professional who has worked for a number of major, global businesses including Michelin and Valeo, where he held senior executive roles. He was also Chairman and CEO of Areva T&D.
Pending the appropriate information and consultation processes in a number of countries, Alcatel-Lucent’s management structure will be reorganized into four main business lines: IP Routing & Transport, IP Platforms, Wireless and Fixed Networks. These businesses will be supported by group-wide functions focused on Operations, Sales and Strategy & Innovation.
The Shift Plan in detail:
An IP Networking and ultra-broadband specialist
Alcatel-Lucent aims to refocus to manage for growth its IP Routing, IP Transport and IP Platforms businesses and associated services. Alcatel-Lucent also plans to focus its Wireless and Fixed Access businesses on Ultra-Broadband access and manage these businesses – as well as its Other Businesses Segment – for their ability to generate cash under the plan.
The Shift Plan reflects fast-changing trends in the telecommunications industry, where service providers and large-scale Internet concerns handle ever-expanding volumes of data as the market migrates from networks built largely for voice communications. Under the Plan, Alcatel-Lucent is adapting to the evolving market by placing its IP, cloud and ultra-broadband portfolio at the center of its operations. This will include WDM, 100G, IMS and customer experience product lines, as well as the ‘FTTx’ group of fiber-based connectivity technologies serving homes, businesses and other types of premises, vectoring, the 4G LTE mobile wireless access and small-cells.
Alcatel-Lucent’s Bell Labs will serve as the innovation engine to facilitate growth in these key areas. Research and Development (R&D) will be concentrated on IP Networking and Ultra-Broadband Access, with an 8{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} increase in R&D from 2013 through 2015, these areas representing 85{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} of R&D investment in 2015. Exits from legacy technologies are to be accelerated in close cooperation with the relevant customers. The Company also plans to focus on in-house start-ups, as well as on partnerships and co-developments (such those as in cyber-security).
Customer focus
Alcatel-Lucent’s new product and platform emphasis is expected to enable it to target a wider range of customers beyond its traditional base of large telecommunications operators.
The Company plans to redesign its sales and marketing strategy to take advantage of the new portfolio focus, identifying new and profitable market segments where Alcatel-Lucent’s leading-edge innovations in IP and cloud will allow it to better address Tier 2 to Tier 4 service providers, benefit from all-IP networks transformation with MSOs (Mobile Service Operators), and address the telecommunications needs of web-scale customers and extra-large enterprises.
The Company expects that successful implementation of The Shift Plan will improve Alcatel-Lucent’s go-to-market approach, resulting in a business that is better leveraged. Targeted improvements will be made in key metrics, such as the number of sites and an increased ratio of sales through channels.
Path to financial sustainability
By refocusing on Core Networking, Alcatel-Lucent aims to deliver – in 2015 – revenues of more than Euro 7 billion from these businesses with an operating margin exceeding 12.5{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3}. The Access segment (including patent licensing and managed services) and Other businesses segment (including Enterprise) are expected to generate a positive segment operating cash flow of more than Euro 250 million by 2015.
Alcatel-Lucent aims at reducing its fixed-cost base by Euro 1 billion between 2013 and 2015 through the adoption of direct-channel operations, additional consolidation of SG&A (sales, general and administration) functions, and by refocusing its R&D capacity. Other actions will be undertaken to reduce the Company’s real estate footprint, and drive efficiencies in project delivery, back-office IT systems, supply chain management, manufacturing and procurement.
Further exceptional cash inflows of at least Euro 1 billion are expected from the selective monetization of assets, including potential disposals, over the period of The Shift Plan.
Following the establishment of a dedicated profit center for Alcatel-Lucent’s intellectual property portfolio, the Company also plans to adopt an entrepreneurial approach to licensing in order to develop a solid revenue stream from its library of more than 30,000 patents and 16,000 applications.
On a cash basis, The Shift Plan is expected to be self-funding over the 2013-2015 period.
The Plan also includes a Euro 2 billion reprofiling of the Company’s debt over 2013-2015 by actively capitalizing on attractive international debt market opportunities. Once the Company has clearly demonstrated the successful execution of the Shift plan, it plans to seek a reduction of its debt by approximately Euro 2 billion including through further asset disposals or through access to the equity markets in order to support its long-term strategic goals.
The outlook and objectives for Alcatel-Lucent included in The Shift Plan replace the outlook referenced in the section 6.8 of the Company’s 2012 Document de Référence.
New Management and Operational structure
The Shift Plan implementation entails the reorganization of Alcatel-Lucent, subject to relevant information and consultation processes applicable in certain countries.
As part of this new organization, the Company will be managed by a new Leadership Team headed by CEO Michel Combes. The team will be organized as follows:
Business Lines
– Basil Alwan, IP Routing & IP Transport
– Andrew Mcdonald, IP Platforms
– David Geary, Wireless
– Federico Guillen, Fixed Networks
Transversal functions
– Philippe Guillemot, Operations
– Philippe Keryer, Strategy & Innovation
– Robert Vrij, Sales
Corporate functions
– Nicole Gionet, Human Resources
– Tim Keller, Legal
– Paul Tufano, CFO of Alcatel-Lucent, will step down from his role once implementation of The Shift Plan is under way.
Michel Combes said: “Paul has played a pivotal role in the Company’s financial stabilization. We are extremely grateful for his dedication as CFO over close to five years. Paul has chosen to move on for personal reasons, and we wish him the success he deserves in doing so. In the meantime, we will work closely together to ensure a smooth succession to a new CFO.”
Michel Combes concluded: “The Shift Plan redefines Alcatel-Lucent’s industrial identity and clarifies its role in the technology ecosystem. The goal is now set, and we can focus, with all the Alcatel-Lucent employees, on its delivery and on finally fulfilling the Company’s potential to create substantial and enduring industrial, social and financial value for all stakeholders.”
