Patricia Russo on Taking the Lucent-Alcatel Helm -- "The Buck Stops With Me"

by: SA Eli Hoffmann

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Lukewarm Investors, Nervous Workers Await the New CEO at Lucent-Alcatel

  • Summary: Taking the helm at failing Lucent Technologies Inc. (LU) in 2002, Patricia Russo returned the company to profitability in less than two years. Her strategy? She cut the work force from 62,000 to 30,000, and jettisoned many of Lucent's side-line businesses. Lucent's recent merger with French Telecom giant Alcatel (ALA) presents a new challenge: To meld the two into a trans-Atlantic telecom giant, and lead the companies in the face of new rivals and a consolidating customer base. Russo plans to cut 9,000 jobs from the combined work force of 88,000. Critics on both sides of the Atlantic expressed discomfort: Americans charge it's almost impossible to lay off workers in France; Russo says this is, "absolutely flat-out not correct." French workers, alarmed by the speed with which U.S. executives slash jobs, are concerned Russo will be too quick to cut positions, and will favor employees at Lucent over those at Alcatel. Alcatel will make up 60% of the company's post-merger shareholder base, and will dominate management. But Russo has made it clear she will be running the show despite a weak French, saying she feels things will turn sour unless the CEO is in clear control. "In the end, the buck stops with me."
  • Comment on related stocks/ETFs: In its Fiscal Q3 conference call, Ciena Corp. (NASDAQ:CIEN) CFO Joseph Chinnici commented on the merger. He was positive 1) because he felt resultant short-term confusion would benefit Ciena, and 2) because in the big picture he felt consolidation was good for the industry. Tim Luke notes that the merger creates the world's second largest wireless equipment vendor with 20% market share—surpassing Nokia Corp. (NYSE:NOK), but trailing Ericsson who leads with 35%—and that product overlap between the two is minimal. Alcatel and Lucent execs held a conference call on Apr. 2 to announce and discuss the merger; chairman Serge Tchuruk said the merger was about taking the lead in innovation (two heads are better than one) and cost-cutting (economy of scale). The recent mergers, LU with ALA and NOK with Siemens AG (SI) has left some pundits worrying that once-mighty Nortel Networks Corp. (NT) might be left without a partner. For broader exposure to the sector, consider iShares S&P Global Telecom ETF (NYSEARCA:IXP), iShares Dow Jones U.S. Telecom Sector Index ETF (NYSEARCA:IYZ), Telecom HOLDRS ETF (NYSEARCA:TTH), and Vanguard Telecom Services ETF (NYSEARCA:VOX).