Alcatel Lucent Cost Cutting Gets Thumbs Up From Market
Once-commanding giant of the technology world Alcatel Lucent announced a fresh cost cutting program on Wednesday as new CEO Michel Combes plans to turn around the company's fortunes. So far investors have approved, with the firm's stock soaring over 6 percent in Wednesday trading.
The French firm's plan, known as "The Shift Plan", is to concentrate on Internet networking and ultra-broadband for both mobile and home access, spelling an end to its former focus on telecommunications equipment making.
"It's a plan that targets competitiveness for the company," Michel Combes told CNBC Wednesday, who took over from Ben Verwaayen in April.
"We are going to refocus our resources on only the two growth engines that we want to leverage...it's comprehensive and actionable."
(Read More: Europe Hurting Telecom Industry: Alcatel-Lucent CEO)
The idea is to cut 2 billion euros ($2.7 billion) in the next two years in both asset sales and job reductions. Added to that, the group hopes debt re-profiling and future debt reduction will help to save another 4 billion euros.
"The company has lost money in the last six years, this is not sustainable. So my goal, my target is to turn this company back into profitability. And my commitment is that this company will be cash generative by 2015," he said.
"Two years to fix the balance sheet, two years to give a real future to this company and make this company one of the highest, successful tech companies in that space."
Shares of the French firm soared by over 7 percent in early morning trade on Wednesday and managed to finished the day higher by 6.36 percent. But not all analysts welcomed the plan; Societe Generale kept its sell rating on the company.
"The key question is whether the company can achieve the 2 billion euro operational cash inflow forecast by Alcatel to be received by 2015. We believe this implies an operating margin of 7.3 percent, a level only seen for Alcatel in 2004 when the whole market was booming. And this is the danger," the bank said in a research note.
"The company needs this 2 billion euros in order to afford the restructuring costs. Additionally, the company needs to find a further 2 billion euros from asset disposals to reduce its balance sheet debt. Achieving this while continuing to satisfy customers will be difficult. Therefore we believe the chance of an equity issue (as an alternative to asset disposals) at some point over the next couple of years is relatively high."
—By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.