Ottawa Citizen: ALA - Newbridge Chronolgy
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Alcatel, Newbridge are birds of a feather
Both companies have solid technology and great vision, Bert Hill reports. As for execution ...
Bert Hill
The Ottawa Citizen
Robert Cross, the Ottawa Citizen / Newsbridge chronology.
The Ottawa Citizen, Bloomberg News /
Eric Feferberg, Agence France Presse /
Parisian media celebrated the 1995 arrival of 'Le grand patron' Serge Tchuruk to rescue Alcatel. He wasted little time in trying to reinvent the French giant.
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When Alcatel SA of France bought DSC Communications Inc. of Dallas in 1998, it dismissed 400 employees in management, sales, services and engineering.
And when it bought Packet Engines Inc. of Spokane, a new Alcatel executive went through the building telling people they were finished.
"He stole the morale of the company and it has been going downhill ever since," Bernard Daines, a Packet founder, recently told LightReading, an on-line news service.
"Alcatel reneged on every promise they made to us."
So what can be expected from Alcatel's pending takeover of Newbridge Networks?
It is impossible to say. The combination could prove to be a home run or a foul ball, but it undoubtedly will make for interesting times, because Alcatel, like Newbridge, is a company with solid technology and great leadership vision but only a modest record of successful execution.
Newbridge's strengths in data switching products should complement Alcatel's leadership in high-speed access, fibre-optics and promising new wireless satellite products.
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The Newbridge deal, for about $7 billion U.S., is the biggest of seven deals worth $16 billion that Alcatel has made in North America in two years to break into the networking market.
Clearly Newbridge would be a critical part of Alcatel's grand announcement last month that it will go head-to-head with Nortel Networks, Lucent Technologies and Cisco Networks for North American business.
But Alcatel is carrying a lot of baggage. And, as Nortel has shown in the past and Lucent just recently did, it is easy to mess up in this tough fight.
Five years after chief executive Serge Tchuruk took control, Alcatel is still struggling to make the transition from a classic European corporation shaped by political ambitions to a new world technology company fighting nimbler competition.
"Alcatel, like the German semiconductor leviathan Siemens, is a company with so many lines of business that it is hard to grasp," said analyst Jason Krause of the Industry Standard. "That's both the promise and the problem of the company."
With annual revenues of $25 billion U.S., operations in 130 countries and a workforce of 118,000, it ranks among the top four telecommunication companies of the world. It has a strong research base of 23,500 engineers, including 6,000 in the U.S., who win 850 patents annually. But compared with Nortel, Cisco and Lucent, it has generated only weak profits, slow growth of its stock price and a startling earnings warning in 1998.
Mr. Tchuruk, 63, studied military engineering at one of France's top polytechniques and spent the first 30 years of his career in petroleum and chemical companies. Unlike the competition's leaders, such as Nortel's John Roth and Lucent's Richard McGinn, he only came to telecom in 1995, when he was selected to take over Alcatel.
His career hits its stride in the 1980s as France started to privatize huge corporations that had been chosen by the French state to express national leadership and were sheltered from competition and favoured with plenty of government business. He rose to his first top job at Rhone-Poulenc, the huge chemical and pharmaceutical company, but he made his reputation rebuilding Total Petroleum into one of the world's biggest energy companies.
A star of France's new professional management class, Mr. Tchuruk captured the Chevalier in the Legion of Honour, heady territory for a man born into the modest Armenian merchant family of Georges Tchurukdichian and Mathilde Dondikian in Marseille in 1937.
Great things were expected of him as he stepped into the Alcatel job. But it is doubtful anyone has faced so many problems in one company as Mr. Tchuruk did.
For starters, his predecessor Pierre Suard had just been arrested in a scandal involving fraud, secret campaign contributions and embezzlement. Allegations that Alcatel had been systematically over-charging France Telecom for equipment drove Alcatel stocks down 50 per cent.
But that was only small play compared with the problems inside a company teetering on the verge of the biggest corporate loss in French business history.
Compagnie Generale d'Electricite was the formal name of the company and CGE is still the Alcatel symbol on European exchanges. Alcatel, the name of a small telephone company acquired in the early 1960s, was one of 900 legally separate and largely autonomous companies inside the giant parent.
One joke in French business circles was that "you can sell a company to Alcatel three times because nobody really what was going on."
Alcatel was involved in literally everything: shipbuilding, satellites, magazines, nuclear reactors, book publishing, consumer electronics, subway car manufacturing, power generation, automobiles and telecommunications. It even owned a Bordeaux vineyard, Gruaud-Larose.
The problem for Alcatel was that while it had been privatized in 1987, it had never really shaken the cosy world of state capitalism where business performance is rarely scrutinized.
Mr. Tchuruk, who described himself as "a simple armaments engineer" set about his new job with his trademark secrecy and tenacity.
Parisian media such as La Tribune celebrated the arrival of the "Le Grand Patron" to rescue a symbol of national pride fallen on hard times.
He brought in Jean Pierre Harbron, his top executive at Total Petroleum, to head the small management team that he favours. He set about selling off vast chunks of the Alcatel empire in return for sizeable ownership stakes. One of the biggest deals was for several parts of the Thomson organizations, a growing force in defence electronics, semiconductors and consumer products.
He slashed thousands of jobs in slow-growth sectors such as electrical cables around the world, including a Montreal plant.
"Telecommunications is the key segment essential to the group's future," he announced.
An employee at Alcatel's Paris headquarters said "he has shown himself to be very courteous, very diplomatic and ... very determined."
Freed of the distractions of unrelated businesses, Alcatel began to prosper as new products found new markets and the company pumped investments into growth sectors. With managers, rather than scientists, running development labs, new products emerged more quickly.
Investors and analysts started to pay attention as sales rose and profits improved.
He pushed Alcatel aggressively into the North American market, buying up companies and building a strong development base in Dallas.
Alcatel hired top talent from top U.S. telecommunications companies and went to court to try to stop Monterrey Networks, Fujitsu and others from stealing its talent.
Mr. Tchuruk embraced the Internet revolution vigorously and tried to put the company stamp on it. But in September 1998, Alcatel surprised markets with a warning that its profits would fall short of analysts' expectations. Its stock fell 38 per cent in one day. Mr. Tchuruk, whose credibility took a big hit, blamed the setback on slow sales in Asia and Russia caused by economic troubles, and slow growth of several products.
"I've always respected the rules for (public) quoted companies and I'm not accustomed to cheating," he told Le Monde as he reacted with surprise and injured pride to the savage reaction.
The Financial Times of London noted that Alcatel got "a sharp reminder that telecom manufacturing is a harsh environment with no room for cosy relationships between national operators and their traditional suppliers."
Mr. Tchuruk had promised that transparency would be a guiding light of his administration and now he was forced to produce. Alcatel began releasing results quarterly -- rather than semi-annually as is the norm in Europe -- and he started meeting regularly with analysts.
Still, the plunge in stock value triggered lawsuits from people who were side-swiped by stock they had received in Alcatel acquisitions.
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Part of the problem for Alcatel is that only 20 per cent of its business is in North America, where the demand is hottest for telecommunications products. In Europe, where Alcatel still does 60 per cent of its business, markets have been slower to embrace leading networking products.
Alcatel leads the world in producing fibre-optic gear, with 37 per cent of the global market. But much of its dominant position is in submarine cables where sales and profits are not as robust.
Alacatel fortunes have started to recover in the last year and the stock price has more than doubled in the past six months. One reason is that Alcatel rules the red-hot market for digital subscriber lines -- the fast Internet access that telephone companies are selling.
With 51 per cent of the market -- its closest competitor has only 16 per cent -- Alcatel is in good position for the future.
"2000 will be the year for mass deployment of DSL," said Catherine Cook, an analyst with RHK consultancy group.
Newbridge chronology
June 9, 1986: Newbridge founded by Terence Matthews.
February 1987: Company ships first product.
July 27, 1989: IPO at $0.11 per share raise $6.7 million.
November 1990: posts first of a series of quarterly losses.
December 1990: Peter Sommerer appointed chief operating officer.
1992: Newbridge begins developing ATM products - sets up Crossberys first of new affiliates
December 1992: raises $106.1 milion in share offering.
June 14, 1993: two-for-one stock split, as sales of TDM products soar.
March 5, 1998: major alliance with Siemens AG announced
Sept. 13, 1996: two-for-one stock split.
Jan. 17, 1997: acquires UB Networks for $146.6 million.
Aug. 5, 1997: first of three straight quarterly earnings weakness at UB.
Feb. 2, 1998: reveals major earnings shortfall.
June 1998: Alan Lutz hired as chief operating officer.
October 1998: discontinues UB and related businesses.
February. 4, 1999: Newbridge pre-announces third fiscal quarter; TDM weakness blamed
May 4, 1999: earnings warning blamed on manufacturing bottleneck.
Nov. 2, 1999: sixth earnings warning in 10 quarters; Lutz resigns Pearse Flynn becomes COO.
Nov. 18, 1999: Newbridge says it will consider being acquired.
Nov. 24, 1999: Newbridge sacks 11 per cent of its workforce.
Alcatel expected to announce it will pay $38-$40 U.S. a share for Newbridge - a deal that could be worth as much as $7.7 billion U.S. |
