Alcatel-Lucent's CEO and chairman are stepping aside as the company continues to face big losses and increased competition from Asian suppliers.
The telecommunications equipment giant said Tuesday that CEO Patricia Russo and Chairman Serge Tchuruk will leave later this year. Russo will finish out the year as she helps the company look for a new CEO, and Tchuruk, who helped architect the mega-merger between Lucent Technologies and Alcatel, will leave October 1.
The company said the two executives had stepped down on their own accord. It is a move, however, that shareholders have urged for months.
And who could blame them. Since the combined Alcatel-Lucent started operating as a single company in December 2006, it has lost more than half its value. It has faced six consecutive quarters of losses and has shed critical market share in several telecom equipment categories.
Executives sold the merger to investors two years ago as a great way to cut costs and compete more effectively with emerging rivals in Asia. But the reality has been much different. Combining any two large companies rarely goes smoothly. But the task of combining the U.S.-based Lucent and France-based Alcatel was further complicated by cultural differences between the two companies, which analysts say remain unresolved.
As the company tried to combine forces despite the hurdles, its competitors rallied and began stealing customers. In addition to facing competition from the usual players, such as Ericsson, Nortel Networks, and Nokia Siemens, the company also faced increasing competition from new players like Chinese rivals ZTE and Huawei.
These competitive forces, combined with the company's inability to make decisions quickly enough or to retain key executives, have fueled major losses. The company has issued profit warning after profit warning.
Despite promises from Russo last year that a turnaround was in the works, the company's shareholders and board of directors apparently have lost confidence.
For the second quarter, the company reported sales and profits slightly ahead of expectations. It also reported a major loss due to writedowns.
Its immediate future looks bleak amid concerns over the economy. As a result, the company has cut its forecast for third-quarter sales, saying it expects revenue to remain flat or decline compared with the previous quarter. Investors had hoped for a 2.5 percent increase in sales. The company also expects 2008 revenue to fall "in the low to mid single-digit range."
In addition to the departures of Russo and Tchuruk, Henry Schacht, who preceded Russo as Lucent's CEO prior to the merger, will resign from the board immediately, the company said.
Six technology heavyweights came together Monday to announce an alliance to jointly license patents for the broadband wireless technology WiMax.
The group, which calls itself the Open Patent Alliance, includes Intel, Cisco Systems, Samsung Electronics, Sprint Nextel, Clearwire, and Alcatel-Lucent. The intent of the group is to gather rights to WiMax patents and license them to makers of consumer electronics devices, networking equipment, and computers.
During a Webcast Monday, executives from each of the six companies emphasized the openness of the alliance that was being created. And the companies said they hoped other companies would join the group.
"As a founding member of the alliance, our role is to work with different vendors and evangelize the benefits of an open model," said Sriram Viswanathan, general manager for WiMax at Intel Capital. "We will invite others to join and try to influence players who are whetted to other models to understand the benefits of openness."
WiMax is an IP-based wireless technology that offers high-speed Internet access similar to speeds delivered through Wi-Fi, a short-range wireless technology that uses unlicensed spectrum. So far the technology, which was standardized a couple of years ago, has been used mostly in the developing world to provide fixed wireless broadband.
Now companies such as Intel, Sprint Nextel, and Clearwire are pushing mobile WiMax to bring true broadband wireless to MP3 music players, gaming devices, smartphones, and a plethora of other consumer electronics devices.
Sprint Nextel and Clearwire announced earlier this year they are joining forces to complete the construction of a nationwide WiMax network in the U.S. And Intel already has plans to embed WiMax chips into its Centrino laptop chips. Samsung, Cisco, and Alcatel-Lucent have already been developing infrastructure equipment for WiMax networks.
But these companies all agree that for WiMax to be successful a more robust ecosystem is needed. The OPA is meant to encourage this ecosystem primarily by making WiMax-related patents inexpensive and accessible to anyone.
This is different than the cellular model, in which companies such as Qualcomm, Nokia, and Ericsson have separately developed technology and charged patent royalties for 3G products.
Cell phone makers can spend more than 25 percent of developing a new product on licensing underlying wireless technologies, according to a Wall Street Journal article. Intel's Viswanathan said these high royalties are to blame for stifling innovation. He said that cellular chips have not expanded to other devices such as cameras, music players, or gaming devices because of the high cost of licensing patents.
"We haven't seen a broad proliferation of cellular technology in anything other than handsets because the model is closely held and restrictive," he said.
A similar open patent strategy was devised in the video industry for video compression technology.
That said, WiMax faces many challenges. For one, Sprint Nextel and Clearwire are the only major carriers building a WiMax network in the U.S. The nation's two largest cell phone operators, AT&T and Verizon Wireless, have already said they plan to use a competing technology known as LTE.
Still, WiMax backers say that WiMax has at least a three-year time to market advantage since LTE hasn't even been standardized yet. Intel, which plans to include WiMax in its Centrino platform, says it expects to seed the market quickly.
Alcatel-Lucent scored a victory Tuesday when the U.S. International Trade Commission rebuffed a patent infringement claim filed by Microsoft.
The commission reversed an earlier ruling by an administrative law judge, who found Alcatel-Lucent had violated one of Microsoft's patents.
The commission ruled that Alcatel-Lucent did not infringe on patent No. 6,421,439 patent, which deals with technology to identify and affiliate a user in a telephone network, according to the commission's decision.
In its ruling, the commission noted Alcatel-Lucent did not infringe on three of Microsoft's claims because of the way in which the wording for the claims had been modified.
"We are pleased with the decision and always believed we had strong case," an Alcatel-Lucent representative said.
Microsoft was not immediately available for comment.
Last year, Microsoft filed a complaint with the ITC, alleging Alcatel-Lucent had violated four of its patents. The other three included patents 6,430,289, 6,263,064 and 6,728,357, which also relate to communications technology. The administrative law judged had ruled in Alcatel-Lucent's favor regarding those three patents.
A federal appeals court issued a split ruling on Alcatel-Lucent's patent infringement lawsuit against Microsoft and Dell.
The U.S. Court of Appeals on Thursday issued a ruling Thursday that kicks one of Alcatel-Lucent's claims back down to the lower courts for further review. This particular allegation centers on a communications protocol (Ackerman, or 131) patent designed to allow a host computer to communicate with a "terminal device."
The appeals court, in remanding the case back to the lower courts, said the lower court erred in its construction of the term "terminal device."
The appeals court, however, sided with the lower court's ruling on Alcatel-Lucent's digital speech compression (Atal, or 954) patent. The technology is designed to produce natural sounding speech at lower bit rates.
According to the ruling, the appeals court found the lower court was correct in its construction of the phrase "each successive iteration including the steps of."
"We are very pleased with the court's decision on the Ackerman patent and respect its decision on the Atal patent. And we appreciate the careful attention the court paid to our appeal," said Mary Lou Ambrus, an Alcatel-Lucent spokeswoman.
Microsoft, meanwhile, also considers the court ruling a victory.
"We are gratified that the Federal Circuit affirmed the lower court's ruling that speech coding technology in Microsoft's products did not infringe the '954 patent," said David Bowermaster, a Microsoft spokesman. "We look forward to demonstrating at the district court level that Microsoft did not infringe the '131 patent and that the patent is invalid."
The software giant noted it expects to be only a minor player in that dispute.
The appeals court decision has no bearing on Alcatel-Lucent's appeal in another Microsoft lawsuit, in which a a lower court nixed a $1.5 billion jury award to the telecommunications giant in an MP3 case.
Alcatel-Lucent is still awaiting for its appeal to be scheduled with the court.
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