Investors running out of patience with Alcatel-Lucent

Long-term Alcatel and Lucent investors – if any still exist – must either be masochists or irrepressible optimists. Ever since the dotcom bubble burst, few companies have managed to destroy shareholder value more systematically than the now combined French and US telecommunications equipment makers.

When the two finally did merge at the end of last year, many long-suffering investors believed their prolonged pain was over. But their expectations were short lived. Only a month after the transatlantic deal was completed, the company issued a profit warning. Then, a few months later came another warning, this time on the company’s sales outlook.

The misery continued last month when the company announced a higher-than-expected second quarter loss. Nonetheless, Pat Russo, its American chief executive, tried to lift everybody’s spirits by suggesting that a “strong ramp-up” was expected in the second half of this year.

Well, the Franco-American group seems to have done it once again. Yesterday it issued yet another profit warning, cutting its full-year revenue forecast and sending its shares tumbling nearly 10 per cent. Since the beginning of the year, Alcatel-Lucent shares have fallen by about 40 per cent, compared to a 7 per cent drop in the shares of one of its main competitors, Ericsson.

The Swedish group was also on the ropes a few years ago, but has since managed a strong recovery. Its market capitalisation has also recovered – albeit not to the irrational peaks of the late 1990s – and it is now worth €45bn ($62.5bn) compared to less than €17bn for its Franco-American rival. Along with other competitors it has continued to make life even more difficult for Alcatel-Lucent by keeping pricing pressure up in the wireless network business. There was, however, some good news for Alcatel-Lucent. The company finally secured this week agreement with its French unions. These had been noisily fighting the group’s restructuring programme aimed at shedding some 12,500 jobs worldwide, and about 1,330 in France.

Integrating the American and French operations was never going to be easy. But it has so far proved far more complicated than the two sides ever envisaged.

Ms Russo on Monday continued to express confidence that the Franco-American company had the right combination of people and assets to make it a leading industry player. But after yet another profit warning, investors are not convinced and are showing signs of fatigue.

Nice guy

Everybody who meets Siemens’ new chief executive, Peter Löscher, agrees that he is “nice”. For some analysts and investors this seems to be short-code for “not radical enough”. Mr Löscher’s first moves are unlikely to suggest a sea change is afoot – hopes, for instance, of a radically smaller management board are likely to be dashed.

But the German engineering conglomerate, shaken by a huge bribery scandal, needs a smooth operator who can balance the interests of shareholders, workers and politicians. Mr Löscher wants to simplify Siemens’ decision-making and make the company easier to understand. He wants to change the culture from top to bottom, making managers more responsible for their actions – a move long overdue.

Investors, desperate for radical restructuring, are worried. Workers are concerned about job losses and disposals.

Under-promising and over-delivering is one of the oldest tricks in the book. But with so many audiences to please, Mr Löscher must ensure he can over-deliver to all his different constituencies.

Good times

The Swiss can thank John Calvin for at least one thing. The austere Protestant theologian unwittingly launched the Swiss luxury goods industry.

He banned dancing and the wearing of elaborate clothes and jewellery, but allowed watches because he considered them of practical use. As a result, the Geneva jewellers converted themselves into watchmakers assisted by other Protestant craftsmen that fled to the city from Catholic persecution in France, Italy and Flanders.

That was the birth of the Swiss watch industry and the country has never looked back. The industry continues to defy the laws of economic gravity with nothing, not even the current financial markets turmoil, halting international demand for luxury watches.

Swiss watch exports grew more than 15 per cent in the first half of this year after surging last year. The Richemont luxury conglomerate on Monday confirmed the buoyant state of the business. Johann Rupert, the company’s executive chairman, said his principal problem was satisfying demand.

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