Alcatel-Lucent CEO�Ben�Verwaayen�poses before the company's 2012 annual results presentation in Paris today

Alcatel-Lucent CEO steps down after �1.37 billion loss

Telecom equipment maker Alcatel-Lucent will part ways with its chief executive after making a loss of €1.37 billion in 2012.

The poor performance has been blamed on lower sales in Europe and China and a writedown of its wireless and optics businesses and CEO Ben Verwaayen has said the company needed a new leader to complete its turnaround when his mandate ends in May.

The group, which was formed in a merger in 2006, said it would look for a successor internally and externally, and gave no timetable for the appointment.

"If you look at the task at hand, it is focused on execution," said Mr Verwaayen. "Looking in the mirror, I felt maybe that's not my natural strength, and maybe it will be good for the company to get fresh perspective."

Since arriving in September 2008, Verwaayen has been unable to deliver on his pledge to return the group to "normal", with steady cash flow and profit.

Its stock has lost 70 per cent since then, destroying about €7 billion in market capitalisation and knocking it out of the French blue-chip index. The European technology index was flat over the same period.

The company's shares were up 7.8 per cent at 0908 GMT today, however, as Verwaayen's departure opened the door to more drastic restructuring of the group.

Alexander Peterc, analyst at Exane BNParibas, said: "Verwaayen's track record has been at best mixed: the group is still posting losses, its position in the market has been eroded, and revenues have shrunk.

He added: "The shareholder can only welcome the arrival of a new CEO to shake things up."

Peterc said Verwaayen had not gone far enough on cost cuts and asset sales, compared with competitor Nokia-Siemens Networks (NSN), which laid off a quarter of its staff and sold off large chunks of the business to get back to profitability last quarter.

Even after Verwaayen trimmed the product portfolio and pushed through several rounds of lay-offs, the group remains hobbled by its smaller size and higher proportional cost base relative to rivals Ericsson, China's Huawei and NSN.

Outside the United States, Alcatel has small market share in mobile and has not kept pace with new radio antenna technology now sold by Ericsson and Huawei.

The group's fragility was laid bare last year when telecom operators cut back on spending on network gear as the global economic downturn dragged on, forcing Alcatel back into the red after its first annual profit in 2011 since its merger.

Sales fell 5.7 per cent to €14.45 billion last year and the group's annual adjusted operating profit was €117 million, giving it a margin of 2.9 per cent, far below the 5 to 9 per cent margins Verwaayen had once promised.

It burned through €679 million in cash for the year and in the fourth quarter, usually the strongest for telecom gear groups, sales fell 1.3 per cent from a year earlier to €4.1 billion as strong U.S. growth was swallowed by weakness in Europe and Asia.

The company's net loss stemmed largely from a writedown of €1.4 billion "related to the depreciation of goodwill and fixed assets, and the corresponding impact on deferred tax".

Chief Financial Officer Paul Tufano said the charge was linked to the lower value of its wireless and optics businesses.

But Alcatel is likely to get some help from an expected uptick in spending on telco equipment by global carriers this year, with market research group Gartner forecasting sales of network equipment will rise 2.3 per cent to $79 billion in 2013, after falling 6.6 per cent to $77.3 billion last year.

Verwaayen told a conference call that a rebound in spending by operators in China and continued strength in the United States would lead to higher sales of equipment this year.

Shares in Alcatel have risen nearly 30 per cent this year, helped by a €2 billion financing package that the company sealed in January, reassuring investors about its balance-sheet strength.

But to get the loans, Alcatel had to pledge its portfolio of 29,000 patents and its U.S. unit as collateral, in a sign of lenders' worries about the group's future.

The refinancing deal has given Alcatel-Lucent some breathing space to try to repair its problems, analysts said, a task that will now fall to the next chief executive.

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