What is going on with Alcatel-Lucent?

Alcatel-Lucent reported earnings on Friday. It was its first full quarter since it completed the merger and results were somehow disappointing. Company is still struggling itself after the recent trans-Atlantic merger and that continues to cause big troubles. Further, slump in wireless revenue, which fell 15% to €1.2 billion ($1.62 billion) from a year earlier, is creating new headaches as they now face a new threat to its business. So far, problems are coming from more competition in emerging markets such as India, Russia and Africa as well as rival Swedish firm Telefon AB L.M. Ericsson, which is very strong in wireless equipment and GSM technology.

So, let’s focus on the wireless sector for a moment. Alcatel-Lucent launched a new base station during the first quarter, which seemed to cause some orders decline in anticipation of the new product. Also, the company walked away from several bidding processes for wireless-equipment contracts due to competitive pricing pressures, in particular in Latino America. No customers or specific projects were mentioned and not much detail was given either. I find really hard to believe that one single region of the Emerging Markets world has caused such an impact on the wireless business, especially when the company never really focused on that region.

I’d like to also comment on some of the reasons why the two telecom-equipment makers first merged. In theory, they announced the merger as response to increasingly competition in the telecom-equipment business, especially from low-cost manufacturers in China. The combined company would deliver €1.4 billion in annual cost savings by 2009, by cutting 9,000 jobs, merging research and development, and trimming redundant products from its portfolio. It looks like Alcatel-Lucent is still on track to deliver the expected €600 million in synergies in 2007. Layoffs, which will account for about half of the cost savings, have already begun at U.S., Asian and European offices. However, there is a lot of room for improvement and progress seems to be very slow. It will be interesting to keep track of this part of the story.

Bottom line, I still can’t figure out what’s going on with Alcatel-Lucent. Company continues to struggle and I don’t really see an understandable path for recovery. I still remember two or three ago when I thought they were in the best position to beat Cisco. Clearly, it hasn’t materialized and in fact, I think they have already missed the train.