Alcatel-Lucent reported their first quarter yesterday, and there was a lot of red ink in play. The company’s equipment revenues fell below a critical threshold for the first time in years. Particularly troubling was the fact that wireless lost almost 30% y/y and almost 12% q/q. The only semi-bright spot was IP routing, that lost q/q but gained nearly 30% y/y.
As a broad player in telecom equipment, Alcatel-Lucent has a special need for an integrated message that maximizes product pull-through. Any camel that can get a body part into a buyer’s tent needs to make room for the herd. Making that work means establishing a cohesive systemic vision of networking, and then driving that vision into carrier planning. On the surface, Alcatel-Lucent has an unparalleled opportunity for both. Their strategic influence in our surveys has consistently been the highest of all the vendors (though it’s been slipping steadily) and their notion of the High-Leverage Network is conceptually the strategic glue they need. But it’s not been working.
The biggest problem Alcatel-Lucent has is that its individual product groups have never reconciled to the merger. None of these camels want ANYONE in their tent. The relentless self-focus in the product areas means that nobody minds the store overall except someone at a very high level. In briefings, I’ve always been struck by the insight that top management has showed and the pace at which that insight evaporated as you dived down to product detail. Horizontal integration is something this company needed from the moment of the merger, and even today it’s just not there. Sales is left to cobble together strategies from non-cooperative products.
The second problem is positioning and strategy. Yes, I love HLN conceptually, but I’ve spent years trying to unravel just what the heck is inside it. I was able to publish a description of the Alcatel-Lucent service-layer strategy for the first time only about six months ago, and HLN has been around for years. There’s still no in-depth picture on their website, even today. Given that, how does a salesperson convert what’s essentially a strategic vision into a series of sellable products? Especially if all the product guys are manning the barricades against each other as much as against competitors.
Google has finally introduced “Google Drive”, an online storage and collaboration resource. If you look at this offering you see something that has to be frustrating to the network operators, and that’s the fact that there is absolutely nothing here that the operator couldn’t have done, and likely done both cheaper and with higher profit margins. So why didn’t they? The challenge for the operators is that they’re just like Alcatel-Lucent. They have silos, their people don’t talk to each other horizontally but instead fight turf wars. There’s only recently been movement toward cross-silo integration with executive-level teams, and these teams are finding they have no one to engage with in the vendor community.
Like Alcatel-Lucent, network operators are broad players and so have stuff that’s old and at best a cash and loyalty generator and at worst an albatross. They also have opportunities that could dazzle the markets. How do you get those two harmonized in a single business? A systemic approach is essential, which is why the lack of one from Alcatel-Lucent is so sad. There is no vendor whose offerings I could as easily position to buyers as the solution to their long-term monetization problems (Cisco would be second). Yet even in wireless where capex is highest, Alcatel-Lucent is falling behind expectations. It’s easy to say that China is late or China is driving pricing down or CDMA is transitioning. None of that’s a surprise. What’s a surprise is that with the problems of the buyers so acute, Alcatel-Lucent is joining most of the other sellers and sticking their head in the sand.