Can Alcatel-Lucent be saved?

Alcatel-Lucent (ALU) CEO Patricia Russo last year pledged to turn around the struggling telecommunications equipment maker through job cuts and organizational changes.  Based on the latest results, it seems her turnaround plan isn’t working yet.

The Paris-based company just posted a loss of about $3.8 billion for the fourth quarter, and Russo warned that 2008 would not be all roses. According to the Associated Press report on the earnings, the company cautioned that sales in the coming year would be flat to slightly up. 

It has been one quarter after another of bad news out of Alcatel-Lucent, which was formed by the merger of the French flagship telecom maker and Lucent, the AT&T spinoff that was once a tech darling.  Both companies fell on hard times after the telecommunications bubble of the late 1990s burst.

Now Alcatel-Lucent faces challenges on many fronts: The competitive landscape has changed, with upstart companies such as China’s Huawei offering carriers deep discounts to try their wares.  Meanwhile, the carriers themselves are changing directions, relying on more “off-the-shelf,” Internet-based solutions to help them run their networks, which increasingly are based on Internet Protocols, not proprietary systems that dominated the phone business for the last 100 years. 

Russo sees big opportunities in helping these phone companies run their increasingly complex networks. (Even though they are moving to IP, most big carriers still maintain a lot of equipment and technology from days of old.) And in this, she’s right. Carriers we’ve talked to say they are looking to outsource some of the maintenance and integration of their networks - and they would be happy to hire Alcatel-Lucent to do it.

The problem, one carrier executive told us, is that Alcatel Lucent seems to be in disarray, too distracted by a merger integration that still hasn’t gelled, to focus on a business opportunity at hand. If Russo and Alcatel don’t get their act together, it seems, carriers may start doing the heavy lifting of integration themselves, or worse, send that business to a competitor. That would be a missed opportunity for Alcatel, and a shame for Russo, who has been one of the leading proponents of the move into so-called “services” since her days at Lucent.