Soul-searching time for Lucent

Now that merger talks between Lucent Technologies and Alcatel have broken down, Lucent must do some bellybutton gazing and figure out where it is going, what it wants to be . . . and if it will be.

After the aborted talks, Lucent will probably go back to executing its seven-point turnaround plan to streamline its operations, reduce its cost structure and improve working capital. Chairman and chief executive officer Henry Schacht said during Lucent's second-quarter earnings call in April that the plan - which is intended to save the company $US2 billion annually in expenses through headcount reductions, product rationalisations, reduced financing costs and decreased discretionary spending - is meeting expectations. Indeed, analysts were upbeat about Schacht's remarks after that earnings call, so much so that Lucent's stock actually rose a little bit even though the company posted a $3.7 billion loss for the quarter.

But the talks with Alcatel and eventual dissolution of a merger cannot leave Lucent's customers, suppliers, business partners and investors feeling very good about the company's future. That Lucent was considering a marriage with Alcatel or anybody - naively, a "merger of equals", with no premium for shareholders - indicates the seven-point turnaround plan is not enough to right this ship.

Lucent was, and may still be, looking to be rescued. The busted talks reveal that Lucent's leadership may not have faith that the company can go it alone.

The rest of the year will be a trying time for Lucent. The company will attempt to concentrate on winning new business and retaining loyal customers while the spectre of nearly being taken out by a competitor and slipping into eventual obscurity hangs over its head.

All seven-point plans and potential suitors aside, Lucent's toughest task right now is winning or regaining the confidence of new and existing customers and convincing them that the company is here for the long haul.

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