Can Marconi Make a Comeback? [return to Table of Contents]
On Tuesday, Marconi announced the immediate resignations of its CEO Lord George Simpson and chairman Sir Roger Hurn. Mike Parton (CEO Networks) takes over the CEO position and Derek Bonham (senior nonexecutive Director) will act as interim chairman until a new chairman is appointed.
Marconi also presented results from an operational review, causing Marconi to cut its workforce by another 2,000 in addition to the planned 8,000 and to focus its activities on its core business of carrier-class network equipment. According to CEO Mike Parton, the changes are "… a decisive response to the dramatic shift in the fortunes of the global telecoms industry."
Marconi downgraded its expected half-year operating result, which is now believed to be a loss of UK£227 million, with net debt by 31 August of UK£4.4 billion. Acquisition-related goodwill was written down to between UK£3.0 billion and UK£3.5 billion and the debt forecast for March 2002 is "between UK£2.7 billion and UK£3.2 billion" up from the expected UK£2.5 billion.
The following day, Marconi stock fell by 28.3 percent to an all-time low of UK£0.38 at the London Stock Exchange. This looks bad, but Marconi's situation is even worse with the baffling decline of the company's stock from its 52-week high of UK£12.50 per share. In early trading on 6 September, the stock continued its slide, and at the time of writing it had reached a new all-time low of UK£0.34.
Information source: FT.com (September 2001)
Gartner Dataquest Analysis [return to Table of Contents]
Marconi's stock price is approximately 3 percent of the stock's 52-week high. This is very low, not only in absolute terms, but also in comparison with Marconi's competitors: Lucent Technologies is trading at approximately 16 percent of its 52-week high and the corresponding figures for Nortel and Alcatel are 7 percent and 17 percent respectively.
Marconi's troubles are a combination of several factors, including rough market conditions with a negative economic climate and unfavorable technology changes. However, Marconi has been slow to provide investors with financial guidance, and a series of profit warnings has eroded investor confidence.
The announced restructuring plan seems to be only part of what Marconi needs. The plan seems to focus on optimizing the company's primary main revenue-stream: carrier-class network equipment. If successful, this may provide a financial platform that the company can build on — but long-term success will still depend on what Marconi decides to build on top of it. Still, a strong defense is usually a prerequisite for a successful attack, and viewed in this perspective, the actions taken by Marconi do make a lot of sense in the near term. For instance, the SDH market has a lot of momentum, and that works out as an advantage for Marconi.
For long-term success, Marconi will need to establish a migration path for its product portfolio toward next-generation carrier-class equipment aimed at metro and access networks — while keeping its stronghold in the long-haul market. To achieve this, it will need to invest significant amounts in product development — because many competitors already focus on this segment. Gaining access to financing for such investments will require confidence from investors, which Marconi lacks at the moment. Alternatively, with a market capitalization below UK£1 billion, the company has become an obvious target for takeover. In light of the continued slide of Marconi shares, Cisco Systems is still among the prime candidates in such speculations, despite recent denials from Cisco on this issue.
The bottom line is that Marconi's new top management will need to refocus activities to re-establish profitability, regain investor confidence and develop the company's product portfolio — in a period where the economy in general is not bright. This will take a lot of talent, and not only from the top-management. Marconi will have to handle workforce reductions carefully, so that key employees are not tempted to leave the company.
By Peter Kjeldsen (peter.kjeldsen@gartner.com) |
