Serge Tchuruk, annointed by the Alcatel-Alsthom SA board as its saviour, had a severe diagnosis for the company in reporting its first-ever loss, of $240m, yesterday. Too-expensive acquisitions, insufficient productivity, an organisation badly adapted to a changed market, and poor market anticipation were all contributing factors to a restructuring purge that the company expects will cost it up to between $3,200m to $3,600m. Telecommunications revenues dropped by the equivalent of $340m to $6,240m while the income from telecommunications operations, after finance charges, haemorrhaged by $440m for a loss of $120m. Revenues from cables, the second-largest activity at Alcatel, dropped by $360m to $4,000m, while profits on them declined to $180m from $260m. The situation is worrisome, with the most problematic items being telecommunications and European subsidiaries. I can see no real encouraging signs for the rest of the year, so we are very cautious about what our year-end results will be, he said. The $12,0 00m spent on acquisitions in last four years did not bring enough value for the money, Tchuruk said, noting that a third of it merely bought the 30% of Alcatel shares that had been retained by ITT Corp when it sold the majority of its communications equipment operations to the French company. Also, the 8,000m francs ($1,600m) we paid for Telettra, for example, has caused us enormous suffering because its speciality business, transmission, while not completely derailed, has suffered a serious drop in prices, he said.

Ratio has dropped

Neither has the $3,000m Alcatel spent between 1990 and 1994 on restructuring brought any increase in productivity, as measured by the ratio of sales to employee. In fact that ratio has dropped consistently since a high in 1991 of 11% to a negative 0.4% last year. Tchuruk acknowledged, however, that the restructuring could not keep up with the drop in prices for certain product lines, such as the System 12 switch. Still, he said Alcatel’s management principles of putting the accent on regional divisions and subsidiaries was adapted more to the 1980s environment, but not to the 1990s, with globalised markets, weakened state telecommunications monopolies and the implementation of worldwide standards. Tchuruk’s recovery plan for Alcatel addresses four items – balance sheet, productivity, organisation and strategy. To improve the balance sheet, Tchuruk says the company will write off between $2,000m to $2,400m in assets this year in addition to the restructuring. The objective is to achieve $1,400m in productivity gains by 1997. Tchuruk noted that he preferred a policy of alliances rather than just disposal of assets. In terms of the restructuring, Tchuruk said, Alcatel has always behaved responsibly in regard to job cuts and we intend to continue in that mode. As an international group, it would be absurd for us to penalise one country more than another. We will proceed according to the logic of the business. Organisationally, the new chief executive outlined several measures. As expected, he has reorganised the telecommunications division into product units. He is also centralising the company’s financial management, setting up an internal audit and board of director’s audit committee and reinforcing human resources and communications functions for more transparency.

By Marsha Johnston

Tchruk had something to say for each company group’s strategic focus. In multimedia, he said, Alcatel’s moves will be driven by three main principles – understanding and participating in the end-user market, non-competition with clients (not excluding joint ventures), and not investing cash flow in multimedia. It is already number two worldwide in high-tech batteries, says Tchuruk, and believes they are becoming strategically important. We want to accelerate the activity with the lithium-ion batteries we’re developing, he said, adding that the aim is to capture 50% of the world’s electric vehicle market. Its electrical engineering group Cegelec, which his

torically focussed on energy and transport, is getting increasingly involved in telecommunications cabling contracts, Tchuruk said, a trend which will be pursued. In the cable segment, Tchuruk said we have a considerable amount of work to do in rationalising the organisation, industrial structure and product lines and reinforcing its position in high-grow th areas of fibre optic, data transmission and high-frequency mobile systems. Cable should quickly recover its profitability thanks to its strengths, he said. A new strategy for Alcatel’s telecommunications sector is obviously the most critical element in Tchuruk’s recovery strategy. He lined the split of Alcatel’s telecommunications sales up against the world market: fixed network sales represent 61% of Alcatel sales, against 40% of total market sales; its mobile communications comprise only 4.5% (due to our late entry into GSM) against 14% of the market; Alcatel radio and space represent 15% of revenues against 7% of the market (far from being one of the strongest suppliers); and, business network systems, including handsets at Alcatel comprise 19.5% of sales against 39% of the world market total. For business systems, he said, I consider our position there insufficient. The overall aim for Alcatel’s telecommunications business, he said, is to restore profitability by 1998 via restructuring and product quality. On the product and services side, Alcatel wants to bolster its global position in high-growth segments, and capitalise on its technology. Geographically, Tchuruk intends to take advantage of the company’s already strong presence in emerging markets like China and to make a push in the US, where we are absent in switching. The market there is growing rapidly, for network access, transmission gear and multimedia systems. Our objective is to get in by the technology door, he said. For fixed networks, the aims are to capitalise on our installed base in switching, materialise the results of leadership in transmission and become a world leader in broadband, he said. For its installed base specifically, Alcatel is finalising the quality effort o n S12 software, favoring clients with advanced software and accelerating developments towards services, such as Intelligent Network platform. In transmission, the company will rely on its expertise in SDH/SONET and radio/broadband technologies.

Rapid recovery

Tchuruk insisted that any duality of its E10 and System 12 switches is not a problem. We believe that the problems with S12 are largely behind us. There are still some things to resolve, but the biggest problems are in the past. Jozef Cornu, chief operating officer, added that Alcatel still plans to integrate the two switches into its Asynchronous Transfer Mode switch, the Alcatel 1000. But roll-out plans for that product have been delayed because the demand is not quite yet there. In the meantime, we have our two other ATM products for the video and data network markets. In mobile communications, despite a difficult GSM start-up, we have the means, we have the technology and we will invent new systems to double its share of the world GSM/DCS market to 20% by 2000. One of those new offerings will involve integrating DECT technology into mobile networks to provide cheaper, wider access to mobile communications. In closing his first results announcement, Tchuruk reiterated that he was not expecting good 1995 results, but added that I can be more optimistic about next year. Our order book is beginning to take on a good mien for the second half, he said, noting the contract for the SDH-based Hermes data network, which is worth $240m. People who say Alcatel-Alsthom is an ill-assorted collection of businesses with no connection between them are just gossips. Alcatel is a coherent, balanced ensemble of groups, with considerable resources. I’m convinced Alcatel will very quickly become a star perforer. I believe that the team is capable of effecting a rapid recovery.