Alcatel-Lucent chief defends keeping 3G mobile arm

Ben Verwaayen, chief executive of Alcatel-Lucent, has strongly defended the telecommunications equipment manufacturer's decision to retain the loss-making unit that builds mobile network infrastructure.
Mr Verwaayen said the company had more than 50 customers using its 3G gear based on WCDMA technology "that really value what we're doing". They include AT&T, the leading US mobile operator.
WCDMA technology has underpinned the most widely used 3G equipment in the world. Alcatel-Lucent's strength is in 3G gear based on CDMA 2000 technology - which is much less popular than WCDMA.

Mr Verwaayen (was appointed chief executive of Alcatel-Lucent in September ) said the WCDMA unit was an important part of Alcatel-Lucent's efforts to develop a 4G technology called LTE that will enable much faster web-surfing on mobiles.
He also said the unit - which makes network gear based on a third-generation wireless technology called WCDMA to enable web-surfing and other data services on mobile phones - was valued by the company's customers.

Some analysts have concerns about Alcatel-Lucent's relatively weak position in the 3G network gear market based on WCDMA technology compared to its rivals - Ericsson, Nokia Siemens Networks and Huawei Technologies.
Per Lindberg, analyst at MF Global, said AlcatelLucent should shut down its WCDMA unit, and resell another company's products instead. He added that such action would avoid escalating losses at the unit for Alcatel-Lucent, because it is hoping to win 3G network infrastructure contracts this year in China and India.

Alcatel-Lucent - like other telecoms equipment makers - is braced for falling sales this year as the economic downturn deepens. Nortel, once a leading industry player, became the sector's first significant casualty this month by filing for bankruptcy protection.
Mr Verwaayen last month unveiled a turnround strategy for the company, which recorded a net loss of €3.5bn ($4.6bn) in 2007.

After warning the sector's sales could fall by 8-12 per cent in 2009, Alcatel-Lucent is seeking to break even at the level of operating profit. Industry analysts say that performance would represent a deterioration on 2008.

However, by 2011, Alcatel-Lucent is seeking an operating margin in the mid to high single digits. "I will give it my all to make sure that we arrive at that stage," Mr Verwaayen told the Financial Times. "We have been ambitious in our strategy, but prudent in our financials."

Although the company does not disclose operating results for its WCDMA unit, analysts estimate it has been running up losses since the troubled merger between France's Alcatel and Lucent of the US in 2006. The company said in October that it had halved the losses, but declined to quantify them.


By Andrew Parker in London
Published: January 28 2009