Alcatel-Lucent will cut WiMAX investment to reduce costs

Alcatel-Lucent will cut its investment in WiMax as it tries to reduce costs. Instead, it will pin its fourth-generation mobile broadband hopes on the rival LTE (Long Term Evolution) technology aimed at telecommunications operators, it said Friday.

The telecommunications sector is going through some tough times: Alcatel-Lucent expects the market for equipment and related deployment services to drop by between 8 percent and 12 percent at constant exchange rates, forcing manufacturers to adapt their business plans.

In the WiMax space Alcatel-Lucent has decided to stop developing its own mobile WiMax products. It was a tough decision, but the right one, said Ben Verwaayen, CEO of Alcatel-Lucent during a press conference.

Instead, the company will look to partnering or co-sourcing to cut R&D (research and development) spending. Alcatel-Lucent also will reduce spending on customer premise equipment, some legacy applications and its portfolio of fixed-line telecommunications products not based on the IMS (IP Multimedia Subsystem) core, according to a company statement.

The company will, however, continue to develop fixed-wireless WiMax as alternative for DSL (Digital Subscriber Line), according to Verwaayen.

Alcatel-Lucent pulling away from the mobile WiMax market comes as a bit of a surprise to Richard Webb, directing analyst at Infonetics Research, but he said that it's understandable.

"It's no great secret that LTE will be the bigger market, and mobile WiMax will be the little brother," said Webb.

Nortel moved to cut spending on WiMax earlier this year when it announced a partnership with Israeli vendor Alvarion.

Alvarion has overtaken Alcatel-Lucent and Motorola in the mobile WiMax market, according to Infonetics.

Worldwide sales of fixed and mobile WiMax equipment dropped by 21 percent in the third quarter compared to the second quarter, and are expected to continue sliding through 2009 as the economic recession puts the squeeze on this early market, according to a report from Infonetics.

On the other hand, it will continue to push include broadband access, IMS core and CDMA (code-division multiple access) EV-DO (Evolution-Data Optimized) network infrastructure equipment, and will boost investments in LTE and 3G (third generation) mobile networking equipment, enhanced packet core equipment and open application enablers.

All current mobile networks, including GSM, CDMA and 3G networks will all merge into LTE, which will be fast out the box, according to Verwaayen.

The company also unveiled a number of actions to cut costs by €1 billion (US$1.3 billion) in 2009 and 2010, and to achieve an adjusted operating profit around break-even next year.

These include reducing the number of managers by around 1,000 and the number of contractors by around 5,000. It also plans to reduce its R&D, manufacturing, supply chain, procurement and administrative costs.

Alcatel-Lucent's board has also appointed four new directors to help it through the changes, drawing on figures from the worlds telecommunications and IT security, and government.

Louis Hughes will chair the newly formed Technology committee of the board. He is CEO of IT security systems vendor GBS Laboratories, and has previously worked at Lockheed Martin and General Motors.

Jean Monty will chair the board's Audit and Finance committee, and is the former Chairman and CEO of telecommunications operator BCE.

The other two new directors are Olivier Piou, CEO at smartcard manufacturer Gemalto, and Stuart Eizenstat, a partner with law firm Covington & Burling LLP, and a former Deputy Secretary at the US Department of the Treasury.

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