May 20, 2010 / 9:30 AM / 10 years ago

Alcatel CEO sees telco spending boost

PARIS (Reuters) - Alcatel-Lucent ALUA.PA Chief Executive Ben Verwaayen said he was on track to turn the loss-making telecom gear maker around after a painful merger, helped by a boom in consumers surfing the Internet on the go.

Alcatel-Lucent Chief Executive Officer Ben Verwaayen attends the Reuters Global Technology Summit in Paris, May 20, 2010. REUTERS/Jacky Naegelen

The CEO is betting that telecom operator spending on networks will help Alcatel-Lucent overcome its traditional weakness in mobile where it is smaller than rivals Ericsson (ERICb.ST), Huawei HWT.UL and Nokia Siemens Networks NSN.UL.

Telecom operators are not engaging in “catch-up” spending after the recession, rather it is being driven by investment in new services and technology, Verwaayen said at the Reuters Global Technology Summit in Paris on Thursday.

“They are not just building inventory up in the old stuff,” said Verwaayen, who took over the helm of Alcatel-Lucent in September 2008.

Instead operators are seeking to change the business model fundamentally to find a way to make money by “putting broadband capabilities into the palm of your hand.”

Investors are waiting to see if Verwaayen can deliver on this vision. He confirmed the group’s aims to reach an adjusted operating margin of 1 to 5 percent and roughly break-even on cash flow this year.

But after a disappointing first quarter in which component shortages crimped sales, some analysts question whether those goals are attainable.

Concerns over the group’s balance sheet have also come back to the fore, with some analysts asking whether Alcatel-Lucent will need funds as it continues to burn cash to finance its operations and pay for restructuring.

Verwaayen dismissed such concerns on Thursday, saying he was confident about the company’s balance sheet.

Asked whether that was the case even if the year proved more difficult than predicted, he said: “We still don’t need the money.

“I would suggest that people should take a little bit a step back and say: ok what was the Q1 situation? And you can’t extrapolate too much over the total, and we’ve been clear about that,” he said.

“I don’t think that you will see us changing the mood tone that we’ve given. We have been pretty consistent over the last 18 months.”

The CEO added that he did not want to carry out any major mergers or acquisitions because of the complexity involved.

EYEING STARTUPS

Analysts and industry executives have said more consolidation may be in the offing in telecom gear because of intense competition. Some speculate that Alcatel-Lucent could become a takeover target for Nokia Siemens Networks or a Chinese player if it proves unable to prosper on its own.

“I had to deal with complexities as the result of mergers. If I look back where the company spent its energy, it was dealing with complexity,” he said. “I wouldn’t want to go through that again.”

However, Alcatel-Lucent would stay on the look-out for small technology purchases, such as “a startup here and a startup there” to bolster its product portfolio beyond its internal research and development.

Asked how Alcatel-Lucent could compete for deals with deeper-pocketed rivals such as Cisco (CSCO.O) or IBM (IBM.N), Verwaayen said he did not think they would be going after the same targets.

Since the Franco-American group was formed in a merger in 2006 it has struggled first with a complex integration and then intense competition from Chinese and European rivals, especially in its fixed business where it was traditionally strong.

The company has posted only two profitable quarters since the merger while burning through cash with restructuring costs and has not proven it can match or exceed pre-merger margins.

Verwaayen also dismissed rumors that he could take a position in the Dutch government should the Liberals be part of a cabinet after June 9 elections.

Verwaayen in 2006 helped write the Liberals’ election manifesto and his name has come up in Dutch media as a potential member of cabinet.

“They have been asking me this question for 25 years. I have been boringly consistent... and the answer is no... under no circumstances,” he said, adding that he was happy to help the party with advice from the sidelines.

Editing by James Regan

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