Alcatel-Lucent merger gets cool reception

Alcatel-Lucent's merger has created "uncertainties" for its customer base; cost-cutting measures may be taken after it failed to make a profit in Q4 last year.

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By  Ben Flanagan Published  January 23, 2007

Alcatel-Lucent's merger has created "uncertainties" for its customer base, its CEO said today, warning that the firm will need to take additional cost-cutting measures after it failed to make a profit in its fourth quarter last year.

The telecoms-equipment maker said that it expects its Q4 operating profit to have fallen from US$739million in the same period a year before to approximately breakeven, based on the combined companies' accounts.

Alcatel-Lucent was created last year from the merger of French group Alcatel with US-based rival Lucent, a move which created the world's largest communications equipment supplier.

"2006 was a extraordinary year in many ways for our company," CEO Patricia Russo said in the statement announcing the firm's preliminary results, pointing out that as well as the merger it had also bought a business unit from Nortel and transferred some of its operations to Thales.

"In the past few months, these moves created short-term uncertainty for our customers and for our people as we worked to develop the combined company's product portfolio and new organisation structure. This uncertainty together with the work required to close the merger significantly impacted the business," she added.

Russo said the quarter had also seen "challenging" market conditions, with heightened competition in the global wireless market.

"In a market that continues to be highly competitive, Alcatel-Lucent has decided to take additional actions to further reduce its cost structure," Russo said in the statement, without clarifying what those measures would be. Combined cost savings would be at least 600 million euros (US$780million), 200 million euro higher than initial synergy targets.

Previously announced cost-cutting measures include the cutting of 9,000 jobs, approximately 10% of the companies' pre-merger workforce.

Following the completion of the merger last December, the Middle East operation of the firm expressed confidence that it would not be affected by job cuts.

"We expect the merger to give us the possibility to enlarge our footprint in the Middle East," Vincenzo Nesci, vice president of the regional unit, told IT Weekly in a statement at the time.

Recent customer wins for Alcatel-Lucent in the region include an internet protocol (IP) communications system at Dubai International Airport's planned third terminal.

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