Alcatel-Lucent's Strategy
Posted Wed, 17 Dec 2008 09:57:28 EST by Nadine Manjaro
Alcatel-Lucent’s strategy to streamline its operations, focus on IP, optical, mobile, and fixed broadband, and applications enablement is a sound one and aligns with operators’ direction. Operators are focused on growing revenue-generating services, migrating to flat IP architecture and offloading the maintenance of legacy networks to Original Equipment Manufacturers' (OEMs’) managed services. ALU is building its capability in applications, strengthening its commitment to LTE, optical equipment, and managed services. The company’s focus on managed services which provide stronger growth potential and higher margins will support ALU’s intention to grow its gross margins to the mid thirties in 2009 and high thirties by 2011. Optical networking equipment will also provide growth opportunities as operators look to fiber to meet high bandwidth backhaul demands.
ALU’s plan to reduce WiMAX investment makes sense; however most of the WiMAX R&D should have been completed already, so it is unclear what is meant by reducing investment in WiMAX. ALU has to be careful about changing strategy mid-stream. The company has been building its WiMAX business with several WiMAX contract announcements. So it may not need to do much to maintain this business except to ensure sales support. The announcement that it is reducing its WiMAX focus will negatively impact the company’s perception and commitment to the technology while it may appease Wall Street. Customer’s who saw ALU as a leader in WiMAX may be hesitant to work with the company fearing that it will not be committed to maintaining the advancing technology and related products. It would have been more advantageous for ALU to not make this announcement regarding WiMAX since there is less competition from large OEMs in this space.
Focusing on LTE is a good strategy but ALU will face stiff competition in LTE market since its primary competitors are also investing heavily in LTE. Ericsson, Nokia-Siemens Networks, Huawei, ZTE, Motorola, Samsung, NEC, Hitachi, Fujitsu, and others are all supporting LTE. Since vendors are making little to no margin on hardware, ALU should focus on LTE applications and services. Operators will need assistance developing and deploying revenue generating services. Operators will also need assistance deploying LTE.
Alcatel-Lucent has a fairly sound strategy to reduce loss and return to profitability over the next two years. However the success of the company will depend on its leaders’ ability to streamline its portfolio, products, and staff while maintaining operator’s confidence. The company needs to shift its focus from a hardware provider to solutions provider and be flexible to assess and meet operators’ needs.