Alcatel-Lucent chairman, CEO resign

July 29, 2008 8:12:02 AM PDT
The chairman and chief executive officer of French telecommunications giant Alcatel-Lucent will both resign later this year, the company said Tuesday, as stagnant demand and the weak dollar foiled the promises of its two-year-old merger. Chairman Serge Tchuruk and CEO Pat Russo's departures come as the world's largest fixed and mobile telecom gear maker reported its sixth consecutive quarter of losses on Tuesday.

Alcatel-Lucent says Tchuruk will step down Oct. 1, and Russo will resign "no later than the end of the year." The company says it will immediately begin the search for replacements for both.

Alcatel-Lucent reported a net loss of $1.73 billion for the second quarter after taking a $1.3 billion goodwill writedown.

The company, which was formed through the 2006 merger of France's Alcatel and the U.S.-based Lucent, is in the middle of a painful restructuring that foresees 16,500 job cuts.

In its statement, the company quoted Tchuruk, Alcatel's longtime chairman and CEO before the merger saw him take on the non-executive chairman role, as saying the resignations were aimed at giving Alcatel-Lucent "a personality of its own, independent from its two predecessors."

Russo was quoted as saying that although she was "pleased" with the company's progress, "the company will benefit from new leadership ... to bring a fresh and independent perspective."

When conceived, the Alcatel-Lucent merger was designed to boost margins through cost and research and development savings, while improving the joint company's pricing power with telecom operators, its largest customers. But intense competition in the industry means many of the savings have been used on discounts passed on to customers.

Alcatel-Lucent's stock price has fallen by over three-fifths since the merger, and the company has yet to post a profit.

Russo survived calls for her resignation at Alcatel-Lucent's annual shareholder meeting in May, where she was barraged with jeers and whistles by investors furious over the company's performance.

Russo was criticized by shareholders not only for the shares' slide, but also for her demeanor, her inability to speak French and, above all, her salary. In 2007, she was paid $2.79 million, including benefits.

In Tuesday's statement, the company confirmed its outlook for the rest of the year, which forecasts an adjusted operating margin in the low- to mid-single digit range and an adjusted gross margin in the mid-thirties. It also said it continues to expect revenue to decline in the low- to mid-single digit range.

Alcatel-Lucent makes about half of its sales in U.S. dollar or dollar-linked currencies and has suffered from the U.S. currency's weakness to the euro.

In the second quarter Alcatel-Lucent reported revenue of $6.5 billion, down 5.2 percent from $6.8 billion a year earlier.

Excluding the foreign exchange impact, sales were up 1.7 percent, Alcatel-Lucent said.

Sales will stagnate or decline slightly in the third quarter, the company added.

The company warned that a spending slowdown by telecom carriers which began in the U.S. could move to European operators but that this is being offset by stronger-than-expected demand for mobile telecom gear in Asia and strong demand for services like network operation and integration.

Overall, the company still expects the telecom equipment and service market to be flat this year, in line with the forecast of rival equipment makers like LM Ericsson of Sweden.