* Michel Combes faces steep task ahead
* Expectations new CEO will speed up cost cuts-unions
* Analysts say group needs shake-up to meet 2015 targets
* Question over how much further to go on asset sales
(Adds background, source, shares)
By Leila Abboud and Catherine Monin
PARIS, March 27 The new chief executive of
Alcatel-Lucent, set to take over on April 2, will
present his plan for the loss-making telecom equipment maker in
June, a spokeswoman said.
Michel Combes, the 51 year-old former head of Vodafone's
European business, faces a steep task if he is to solve
the group's problems of persistent cash burn, high costs, and
stiff competition from larger rivals Sweden's Ericsson and
His predecessor Ben Verwaayen, whose departure was announced
in February, was criticised for being too slow to launch major
cost cuts and was unable to deliver a promised turnaround in his
five-year-long tenure, hampered by weak demand for telecom gear
last year. In 2012, the firm posted a 1.4 billion-euro ($1.8
billion) net loss.
"Combes gave himself the month of March to listen and learn
about the situation of the company by meeting with major
customers and employees," said a spokeswoman for Alcatel-Lucent.
"He will take two months to decide on a plan and will
announce in June the major strategic orientations for the group
in the three coming years."
Labour union representatives who met with Combes on Monday
said they expected him to accelerate the 1.25 billion euro
cost-cutting plan, which includes 5,500 job cuts. But they said
Combes would take time to decide on asset sales because the
group has breathing room after a 2 billion euro funding package
"Michel Combes explained that it was imperative to go more
quickly on the plan to cut jobs," said a labour union source who
declined to be named because the talks were internal.
"He doesn't reject the idea of asset sales if they make
sense, but we are no longer in an urgent mode to sell under
pressure from the markets."
Alcatel-Lucent's streamlining to date has been less
ambitious than rival Nokia-Siemens Networks, which cut
nearly one-quarter of its workforce last year and sold off large
business lines in a successful bid to return to profitability.
Morgan Stanley and Bernstein Research analysts have begun
calling for Combes to begin a major revamp, including an exit
from the loss-making fixed-line and optical businesses.
The prior management had set a 2015 target for an adjusted
operating margin of 6 to 9 percent as part of a January loan
deal, and Combes' pay package and bonus are linked to the goal.
"The mission Combes has been given by the board is to turn
around the company. It is not a question of dismantling
everything or sticking with the approach of Verwaayen," said a
person familiar with the company's thinking.
"He will review every aspect (of the strategy). There will
be no sacred cows."
Since its formation in a merger in 2006, Alcatel-Lucent has
not reached sustainable profitability or cash generation.
It has strong technology in fixed broadband, optical
transmission gear in the backbone of networks and
fourth-generation mobile (4G), but struggles with a high cost
The U.S. market, which is essentially closed to Chinese
competitors and where operators have invested heavily in 4G, has
saved it in recent years as it lost share in Europe and Asia.
Alcatel-Lucent shares have risen 3.8 percent this year to
close at 1.02 euros on Wednesday, but its market capitalisation
is 2.4 billion euros, less than one-tenth of pre-merger levels.
Alcatel-Lucent said in December that it was considering
sales of non-core assets worth 1-1.5 billion euros. Banking
sources earlier told Reuters the undersea optical cable
business, and a unit that sells telecom gear to corporate
customers were being evaluated for sale.
Morgan Stanley analyst Francois Meunier argued in a note
that Alcatel-Lucent should sell off its entire optics business -
undersea cables and land where competition with China's Huawei
is fierce - as well as its fixed line products, long one of the
group's core strengths.
Pierre Ferragu from Bernstein Research believes a more
radical revamp of the group's activities is needed but is not
sure when it will happen.
"For the time being, it seems that Combes does not have the
backing from the board to implement radical changes to the
company's perimeter," said Ferragu.
"But Combes could later come back to the board in six months
or a year and seek support for bolder change."
($1 = 0.7777 euros)
(Editing by Lionel Laurent and Elaine Hardcastle)