Michel Combes seizes Alcatel-Lucent's 'last chance'

Michel Combes did not sign up for an easy job when he raised his hand in February to be chief executive of Alcatel-Lucent.

Since its 2006 merger with US-based Lucent Technologies, the French manufacturer of everything from radio towers to billing software for mobile phones had lost about €700m of cash, on average, every year.

Its share price plummeted from slightly more than €13 in 2006 to €1.02 in the first quarter of this year. At the end of 2012, having announced at least half a dozen unsuccessful turnround plans, the company was ignominiously excluded from France's CAC 40 index of leading stocks.

But for the telecoms industry veteran, it was an irresistible challenge for putting his reputation as a cost-cutting king to the test.

On Tuesday, he gave Alcatel-Lucent staff the clearest indication yet what that would mean: the loss of about 10,000 of the company's 72,000 jobs by the end of 2015 - with 900 in France.

During the same period, the company would also halve the number of its business hubs globally. "We must make difficult decisions," said Mr Combes. "And we will make them with open and transparent dialogue with our employees and their representatives."

The job cuts have already drawn criticism from Arnaud Montebourg, minister for industrial renewal, who called the plan "excessive . . . it must be reduced". On Wednesday, Jean-Marc Ayrault, the prime minister, weighed in.

"We want a negotiation that saves as many jobs as possible," he told Europe 1 radio. "If there is no majority agreement [with unions] the social plan won't be accepted."

Yet the cuts are an integral part of what Mr Combes calls the "Shift Plan", a deep restructuring of Alcatel-Lucent's global businesses to reduce the company's fixed costs by €1bn, or more than 15 per cent. It also entails focusing on high-growth areas such as 4G-related technology as well as very high-speed broadband.

The company said it would dedicate 85 per cent of its research and development budget to next-generation technologies in 2015 from 65 per cent today. In his trademark blunt approach, Mr Combes told Le Monde, "this plan is the last chance".

Many of the company's European competitors have also suffered as the debt crisis and recession hit demand for networking equipment and other infrastructure. Nokia's networks arm, for one, has cut 17,000 jobs as part of restructuring announced two years ago.

A second blow has come with competition from Chinese companies such as ZTE and Huawei, which benefited from double-digit growth in demand at home and in other emerging markets. As Fleur Pellerin, France's minister for digital industries, told the Financial Times on Tuesday, "we did not anticipate the competition from Chinese manufacturers".

Analysts welcomed the news of the job cuts. Bank of America Merrill Lynch analysts described the move as "a major step in the right direction".

Markets also reacted favourably, with Alcatel-Lucent's shares initially rising 1.5 per cent after the announcement, although they finished 4 per cent lower on government officials' comments.

On Wednesday the shares fell a further 7.6 per cent, as investors reacted to the political criticism of the planned restructuring.

During the past six months, more or less the time Mr Combes has been at the company, the shares have risen by a remarkable 154 per cent, with the CAC 40 gaining only 12.6 per cent in the same period.

Beyond the plan itself, one reason for the optimism is Mr Combes' record. During his four years as chief executive of Vodafone Europe, he carried out a successful £2bn cost-cutting plan.

He also expanded the company's data and enterprise business, and overhauled its data tariff structure to base it on consumption levels. One person who knows him says that the experience outside France opened Mr Combes' eyes to different ways of doing things.

Previously, as chief financial officer of France Telecom, Mr Combes was largely responsible for turning round the company's financial situation. Another person who knows him describes him as "a great team player", adding "he's a very quick learner. It scares people".

Alcatel-Lucent's road to recovery remains long, but observers say that despite Mr Montebourg's criticisms of the job cuts there is at least a creeping recognition that Alcatel-Lucent's situation calls for radical action.

Ms Pellerin, for example, offered a more conciliatory tone than Mr Montebourg. "With the shift plan, the new CEO has a real strategic vision where it should focus," she said.

Those close to Mr Combes says he is well prepared to navigate any political storms.

"He knows that you never want to surprise politicians and put them in a corner," said a person with knowledge of the situation. "He did the rounds before. You can be sure of that."

Additional reporting by Daniel Thomas in London

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