Alcatel's Tchuruk Posts First Loss in Six Years (Update2)
By Molly Schuetz
Paris, July 26 (Bloomberg) -- Serge Tchuruk won accolades last year after his transformation of Alcatel SA into Europe's No. 4 phone-equipment maker sent shares to a record and generated a 1.3 billion euro ($1.1 billion) profit.
The 63-year-old chief executive was named France's ``Manager of the Year'' by the magazine Le Nouvel Economiste.
Eight months later, he today reported a second-quarter loss more than double last year's profit, the company's first loss in six years. Demand for the switching equipment and fiber-optic cable the company makes has slumped as economic growth cooled and debt-laden phone companies scaled back spending.
``It was a good moment two-and-a-half years ago to get into telecoms, but today Alcatel is being punished,'' said Manuel Lachaux, an analyst at ETC who rates the stock ``neutral.''
Yesterday, the shares fell as low as 16.73 euros, down from a high of 97.15 in September and the lowest level in 2 1/2 years. The stock rose as much as 1.2 euros today to 18.09.
Alcatel and rivals such as Ericsson AB, Lucent Technologies Inc., Nortel Networks Corp. and Marconi Plc have seen profits evaporate as demand for phone equipment flags. Alcatel's shares fell 71 percent this year, compared with a 59 percent drop in the Bloomberg 500 European Telecom Equipment Index.
Tchuruk, once nicknamed the fireman of French industry after turning around France's biggest oil and drug companies, now known as TotalElfFina SA and Aventis SA, said he would follow the same strategy at Alcatel if he had to start again.
``I don't have a shade of regret about the strategy,'' he said at a press conference at the company's Paris headquarters. ``I've had many lives before coming here. I've seen many things before. In a crisis, a leader must not lose sight, mustn't panic, shouldn't change course. I'm not panicked by what's happening.''
Second-Quarter Loss
The Paris-based company lost 3.1 billion euros, or 2.74 euros per share, in the second quarter, its first loss since 1995. That compared with a profit of 344 million, or 32 cents, a year earlier. The announcement came as Chief Operating Officer Krish Prabhu, 46, considered a possible successor to Tchuruk, quit for ``personal reasons.'' He was named to Alcatel's board.
The company, whose plan to buy Lucent to double its size and become the world leader failed in May, now plans to shed 20,000 employees, or 18 percent of its workforce, this year to reduce costs as the slowdown in the U.S. spreads to Europe.
Until the market turns around, the best thing Tchuruk can do is keep cutting costs or ``pick up technology companies for not much money,'' said Stuart O'Gorman, who manages about $4 billion in technology stocks at Henderson Investors.
The problems of telecommunications-equipment makers stem from a paucity of orders from companies such as France Telecom SA and British Telecommunications Plc. Those customers have pared spending after paying some $100 billion for licenses to offer faster mobile-phone services. To cut costs, they're slashing spending on new equipment and linking up on network construction.
Will It Come Back?
Tchuruk led Alcatel ``into a market where there was a huge spin on telecom equipment,'' said Robert Sellar, who helps manage 1.5 billion pounds ($2.13 billion) in global stocks, including Alcatel shares, at Aberdeen Asset Management. ``The question is whether that's going to come back.''
Tchuruk has already done some cost cutting. His company, which paid him 2.65 million euros ($2.28 million) in salary last year, plans to trim spending by 1 billion euros this year by saving on travel expenses, delaying hiring and putting off some research programs.
After deciding in 1998 that Alcatel's strength lay in telecommunications, Tchuruk is whittling that down to three main areas -- optics, phone networks and space technology.
Selling Units
In April, Alcatel said it would farm out production of mobile phones to Flextronics International Ltd., a Singapore-based manufacturer. Two months later the company, which has about 5.3 billion euros in debt, sold its modem unit to Thomson Multimedia SA for 456 million euros in stock. It plans to exit most manufacturing.
Alcatel also sold 70 percent of its cable unit, Nexans, in a share sale last month, raising 450 million euros.
``In a more difficult environment, when we're seeing a shift from fast-growth to something more sustainable, I think it makes enormous sense for companies to focus on what they're best at,'' said Susan Anthony, an analyst at Credit Lyonnais Securities who has a ``reduce'' rating on Alcatel.
Tchuruk, who was recruited to head Alcatel in 1995, had gone on an acquisition spree since late 1998, snapping up $17 billion of assets. He met a setback in his push into the U.S. when talks to acquire Lucent broke down in May. ``If the deal had worked out it would have been excellent,'' Anthony said. ``But it was risky and they were right not to push ahead at any cost.''
Such a purchase would have been hard to imagine a year ago when Lucent was valued at $175 billion and Alcatel at $54 billion. Shares of both fell, however, as sales slowed. Lucent is now valued at about $23 billion and Alcatel at $21 billion.
If Tchuruk had bought Lucent it would have made Alcatel the world's largest maker of telecommunications equipment. It would have also nearly doubled its debt.
Mistimed?
Even without Lucent, Alcatel derives 22 percent of its revenue from the U.S. following a string of acquisitions in the past three years, making it Alcatel's second most important market after Europe.
The 1998 purchase of Texas-based DSC Communications Corp. gave Alcatel a boost in digital switching and network-management systems. In February 2000, Alcatel bought Newbridge Networks Corp., which makes telecommunications switches that deliver voice, data and video on a single network. It bought Xylan Corp., a California-based data-networking company, in 1999.
``His acquisitions gave Alcatel a reasonably good exposure to the U.S., but now with the U.S. being a graveyard for telecom equipment manufacturers it does call into question'' that strategy, Aberdeen Asset Management's Sellar said.
``Should he have delayed those acquisitions? That will only be decided in the next 10 years,'' said Sellar. ``No one is going to get the timing right 100 percent of the time.'' |
