By Scott Moritz
September 2, 2008

By Scott Moritz

Alcatel-Lucent (ALU), the struggling telecom equipment maker, on Tuesday named an old hand as its new chief executive. Former British Telecom (BT) chief Ben Verwaayen, who once ran Lucent’s international sales operations, has been hired to replace CEO Pat Russo.

Alcatel-Lucent also announced that Philippe Camus, the former co-chief of Airbus parent EADS, will take over as chairman, replacing Serge Tchuruk who, along with Russo, announced his resignation earlier this summer.  The news comes days after news reports identified Mike Quigley, the former president of Alcatel-Lucent, as the company’s top pick – a move that some analysts cheered.

Alcatel-Lucent shares fell 2% in late morning trading Tuesday as investors signaled their disappointment with the new hires.  As head of one of the world’s largest networking equipment companies, Verwaayen faces a difficult task of unifying the company’s disparate divisions some two years after New Jersey-based Lucent and France’s Alcatel combined.

“What a missed opportunity,” said Telecom Pragmatics analyst Sam Greenholtz after the announcement. Given Verwaayen’s international background, Greenholtz sees his appointment as a sign that the company is focusing on its European operations at a time when, he says, the company’s customer relationships in the United States are weakening.

“I am sure these guys that were chosen are worthy of the job but, it is not going to fix the poor relationships in the U.S.,” said Greenholtz.

Verwaayen spent four years at Lucent, with mixed results. He ran the company’s overseas sales and was a key proponent of the company’s vendor-finance strategy, which makes loans to customers to finance equipment purchases. Many of the loans turned sour in the post boom industry collapse, and Lucent was left holding billions of dollars in bad debt. At the same time, after the bubble burst, Verwaayen was credited with helping the company trim its product offerings and focus on a core group of financially-healthy customers.

Verwaayen left Lucent in 2001 to make way for Pat Russo, who was serving as CEO at Eastman Kodak (EK). Verwaayen then ran BT for for six years, overseeing the phone giant’s massive network upgrade known as 21st Century Network.  The expensive project has taken longer than analysts had expected, and with BT’s shares hitting a five-year low in March, Verwaayen was gone by May. 

For their part, Russo and Tchuruk went on to engineer the $11 billion merger of Alcatel and Lucent in 2006. But they have struggled from the start to integrate Lucent’s products and operations, based in New Jersey, with Alcatel’s Europe-based business, headquartered in Paris. Making matters worse, Alcatel-Lucent is facing stiff competition from Ericsson (ERIC) and China’s Huawei, among others. Amid the cutthroat rivalry, sluggish economies in the United States and Europe have forced phone companies to cut their networking-equipment spending.

In the nearly two years since the Alcatel-Lucent merger, sales have fallen 7.3% and the stock is down 55% as the company announced round after round of layoffs.

At the top of Verwaayen’s to-do list at Alcatel-Lucent: to bring the bifurcated company together and boost earnings. In July, Alcatel-Lucent posted its sixth quarterly loss in two years, a loss that prompted Russo and Tchuruk to announce they were leaving later this year.

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