May 19, 2011 / 12:15 PM / in 7 years

Alcatel CEO looks to future growth

PARIS (Reuters) - Chief Executive Ben Verwaayen is preparing the next stage of telecom equipment maker Alcatel-Lucent’s development armed with a refreshed product portfolio and a slimmer cost structure.

Alcatel-Lucent Chief Executive Officer Ben Verwaayen attends a Reuters Global Technology Summit in Paris May 19, 2011. REUTERS/Benoit Tessier

The Dutch CEO is on the home stretch of a three-year turnaround plan for the long-struggling telecom gear maker that calls for the group to be a “normal company” again, with adjusted operating margins of 5 percent or higher.

Verwaayen told the Reuters Global Technology Summit on Thursday that Alcatel-Lucent would not stop there.

“Yesterday we had a strategy session, and the Young Turks presented their ideas for technologies that we can use to bring new disruptive products to the market,” said the CEO, who once ran BT Group.

“We need to be a long-term force in the market with a financial profile among the best in the industry,” he added.

Since Verwaayen took over in 2008, Alcatel-Lucent has focused research and development on technologies in optics, fourth-generation mobile and the core of the network that aim to help operators cope with booming data traffic from smartphones and tablets.

It recently unveiled a miniaturized radio base station, dubbed Light Radio, which reduces the cost of deploying mobile networks in urban areas.

“This is a disruptive innovation and the interest from operators has been great,” said Verwaayen, adding that deployments would begin next year.

Still, rivals Ericsson and Nokia Siemens Networks announced plans for tiny base stations only days after Alcatel-Lucent, showing the rapid commoditization that plagues the sector.

Alcatel-Lucent has also struggled to compete in recent years with Chinese players Huawei and ZTE Corp, which were willing to slash prices to conquer overseas markets.

It remains to be seen whether Verwaayen can find a way for Alcatel-Lucent to flourish in an intensely competitive industry.

Some investors appear increasingly confident: shares of Alcatel-Lucent are up around 80 percent since the beginning of the year, and six analysts upgraded their estimates after first-quarter results last week.

Verwaayen said he was “very confident” of hitting his target of an adjusted operating margin of 5 percent or more this year, up from 1.8 percent in 2010.

Alcatel-Lucent has benefited from a wave of investments in fourth-generation wireless networks at major U.S. operators AT&T and Verizon in recent quarters, which has boosted its revenue and profits.

Some analysts have questioned whether Alcatel-Lucent is becoming too reliant on the United States for growth and worry that the operators will slow down their build-outs.

Verwaayen dismissed those concerns.

“You don’t do a build-out in three months and you don’t stop in the middle of a build-out,” he said. “We are in the first year of an investment cycle that will be a multi-year cycle.”

He also said he expected China to begin investing “massively” in fourth-generation mobile technology next year.

Analysts and investors have started debating what level of margins Alcatel-Lucent can achieve in the longer term.

Verwaayen declined to forecast profitability beyond the end of the turnaround plan.

But he said the company still had a lot of room to cut costs in everything from information technology to its supply chain and argued that the pressing need for operators to invest in networks was positive for the future.

“The whole portfolio of Alcatel-Lucent is geared toward more software, more integration, more IP, and that carries a somewhat higher margin than the traditional hardware,” he said.

Asked whether he planned to stay on at Alcatel-Lucent after the turnaround plan was completed, Verwaayen laughed.

“I never think about my future... I have no plans to do anything else,” he said.

The CEO said he was only 59 years old and was passionate about his job.

“It’s not done if you only arrive at being a normal company — I just got started so it’s a bit hasty,” he said.

Editing by James Regan

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