NEWSMAKER-Prabhu leaves Alcatel as industry crisis peaks
By Lucas van Grinsven, European technology correspondent
LONDON, July 26 (Reuters) - Krish Prabhu, co-architect of France's telecoms equipment maker Alcatel and tipped for the top job at either Lucent(NYSE:LU - news) or Nortel(Toronto:NT.TO - news), said on Thursday he would step down as chief operating officer.
The 46-year old leaves Alcatel as it struggles to overcome one of the worst recessions the industry has ever seen.
``The loss of (Prabhu) is a step backwards, especially in the difficult transition period,'' said analyst Eric Burkel at Global Equities.
Prabhu's unexpected move, motivated by his desire to see more of his family, occurs less than two months after failed merger talks with U.S. rival Lucent, which would have crowned his efforts to turn Alcatel into a global player with a dominant position in the U.S. telecoms market -- the world's biggest.
His decision to swap his senior role for a lesser position as technology adviser -- albeit still on the board -- announced on the day the company published second quarter results, left investors, analysts and industry players wondering how his decision would impact Alcatel.
``Investors think Prabhu's departure will add uncertainties as they wonder what Alcatel management wants. Prabhu's aides could leave Alcatel as rivals, such as Lucent and Nortel, need top managers,'' said one sector analyst who declined to be named.
Prabhu was in talks for leading positions at Lucent and Nortel last year, but Alcatel's Chief Executive Serge Tchuruk convinced him to stay, according to industry sources.
Now that he is leaving, Prabhu insists it is for personal reasons alone.
``I cannot be on the road all the time,'' Prabhu told French financial newspaper Les Echos. ``For the first time in my career, I am really putting an emphasis on my personal interests rather than my professional interests. I have decided to stay in Dallas, not move, and stay with my family.''
FAMILY MAN?
People who know Prabhu said his commitment to his family was sincere and that his children were likely to keep him at home in Dallas for much of the next two to three years.
Sceptical outsiders, however, wondered what Alcatel might have offered to keep Prabhu from jumping ship altogether. In a results conference call, Tchuruk did not elaborate on agreements with Prabhu.
U.S. investors would like to see the trained engineer with Indian roots take over one of America's telecoms equipment icons.
``The Street loves him. They would like to see him anywhere,'' one banker said.
Born in southern India, Prabhu came to the U.S. in 1975 after earning a master's degree in physics from the Indian Institute of Technology in Bombay.
He then earned master's and doctoral degrees in electrical engineering from the University of Pittsburgh and in 1980 he was hired at Bell Labs, then part of long-distance telephone giant AT&T Corp. and now the jewel in the crown of Lucent. He joined Rockwell in Dallas in 1984.
Described as driven yet friendly, Prabhu joined Alcatel in 1991, when the French telecoms equipment company bought the Rockwell unit where he worked. He has held Alcatel's top spot in the U.S. since 1997, and in 1999 was named chief operating officer.
``He's not relying on others to tell him what to say,'' said Ken Wigglesworth, a venture capitalist who was chief financial officer of Newbridge Networks, which Alcatel bought last year for $7.1 billion. ``He's not your figurehead leader.''
A TRAINED ENGINEER
Neither is Prabhu the type to feel lost in the research lab.
``He has an amazing ability to go across all technology boundaries, all the way from the most theoretical optical networking stuff in the university to how do you make a buck with the stuff in the field,'' said Bill Osborne, dean of the University of Texas at Dallas engineering and computer science school, where Prabhu taught part time in the late 1980s.
On the other hand, Prabhu can move freely between the lab and Wall Street, said Paul Pandian, who worked with Prabhu at Rockwell and has known him almost 20 years.
``He started out as a pure and simple engineer, but very soon he became a businessman as well. That kind of a transition, very few people have made successfully,'' said Pandian, now CEO of a Dallas telecoms software company.
However, questions remain about his experience. ``He knows the technology. He's quite dynamic himself, but whether he's quite got what it takes to run a whole company, I'm not sure,'' said Susan Anthony, an analyst with Credit Lyonnais in London.
She nevertheless credits Prabhu for helping to change attitudes at Alcatel, a former conglomerate that has largely missed out on the emergence of mobile phone technology and had to scramble to catch up on the Internet revolution.
However, over the last years it has transformed itself under Tchuruk into a leading communications equipment company.
Notwithstanding the collapse of the $23 billion merger with Lucent, Prabhu is credited with implementing Alcatel's aggressive North American expansion over the last few years.
Since September 1998, Alcatel has spent more than $15 billion acquiring eight North American companies.
He has overseen Alcatel's rapid expansion in North America from his Dallas headquarters, including the $4.4bn acquisition of DSC Communications and last year's $7.1bn takeover of Newbridge Networks, a Canadian maker of data switches.
Analysts covering Alcatel are glad he is still linked to the company, albeit it in a non-executive role.
``The good news is Prabhu doesn't leave to join a rival,'' said Christophe Quarante, analyst at KBC Securities.
Prabhu told Les Echos he had no intention of joining a competitor and did not exclude the possibility that one day he would succeed 63-year old Tchuruk as chief executive.
``I don't exclude it but it depends on Alcatel. If Alcatel wants me back, I will certainly return. If I'm the right candidate, I will do my best,'' he said.
(additional reporting by William Emmanuel in Paris and Ben Klayman in Chicago)
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