Like many who follow the financial results of important players in the communications industry, it is never dull to read the release of information in its entirety. Alcatel-Lucent’s Q4 and FY 2013 results are a case in point. 

Highlights for the quarter and the year showed that Alcatel-Lucent (ALU) CEO Michel Combes’ “The Shift Plan,” is more than a plan. It is being executed with significant if mixed results. Combes noted: “We have demonstrated today that we are well on track to meet The Shift Plan’s objectives…We have strengthened our balance sheet through the success of financing actions taken to reduce and re-profile our debt. Overall, we have made significant progress to improve competitiveness, both in terms of profitability and innovation.”  In fact, he predicted that he expects to have fully implemented, delivered and executed on The Shift Plan by the end of 2015.”

The details on how ALU has been doing, including where they are in terms of meeting The Shift Plan targets, are contained in the release of their results.  The financials are certainly of interest for a host of reasons relating to not only where the company is in its turnaround but also what is going on in the tumultuous markets in which they compete both from a technology and geographical standpoint. The hemorrhaging seems to have eased. Losses for FY 2013 were 1.3 billion euros as opposed to FY 2012 when losses were 2 billion euros, highlighting this is still a work in progress with much that remains to be done. 

All of this would be news by itself.  However, at least for me, the big item here was the announcement that ALU has received a binding offer from China Huaxin, a technology investment company for acquisition of Alcatel-Lucent Enterprise. 

You read correctly, after months of rumors, and in line with Combes and the ALU Board’s efforts to improve the balance sheet by selling off what they think are valuable but non-core assets, Alcatel-Lucent is in the process of getting out of the enterprise communications business. Deep in the financials was the following explanation:

“Today, the Group is announcing it has received a binding offer from, and is entering exclusive discussions with, China Huaxin, a technology investment company, for the acquisition of Alcatel-Lucent Enterprise. The contemplated transaction values Alcatel-Lucent Enterprise at Euro 268 million on an enterprise value basis (cash-free/debt-free) and at a currently estimated Euro 237 million on an equity value basis, for 100%. Alcatel-Lucent will retain a minority stake of 15%. The proposed transaction will shortly be submitted to the workers councils of Alcatel-Lucent Enterprise for the required information and consultation procedures. A definitive acquisition agreement is expected to be signed during the second quarter of 2014. Closing would be subject to certain conditions, including the approval of certain regulatory authorities, and is targeted to take place in the third quarter of 2014.”

While long rumored as an asset to be jettisoned as the company repositions itself into specialists in IP and Cloud Networking and Ultra-Broadband Access, seeing this in print and what seems like a bargain valuation, for seasoned industry observers this is a watershed and a bit emotional event. 

Admittedly, the spin-out of the old AT&T enterprise business by what was then Lucent which became Avaya means that the company legacy of making phones and phone systems for consumers and enterprises had a period of disconnection in terms of a direct lineage to Alexander Graham Bell.  That said, when Alcatel and Lucent merged, they literally and figuratively were back in the phone making business. The pending sale cuts the cord.

How China Hauxin plans to use the acquired assets, including the roughly 3,000 employees, obviously is an open question, as is even such things as the name under which the entity will go to market.

Commenting on valuations is always a tricky thing since such determinations are like real estate always based on what a motivated buyer is willing to offer.  Despite the enterprise communications sector rapidly becoming software and cloud-based driven, it is certainly food for thought as to why the installed base and intellectual property appears to be so low. Even with the recognition that motivated sellers have their reasons for agreeing to terms, this is going to raise eyebrows in board rooms around the industry. 

What will also be top of mind will be questions from various ALU stakeholders and customers as to whether the strategic value of having direct touch with enterprise decision makers, along with the loss of the institutional expertise for understanding the needs of these customers in a rapidly changing world, is way too heavy a price to pay long-term. Certainly, ALU’s aggressive moves in the cloud-arena in both software defined networks (SDNs) and the emerging network functions virtualization (NFV) areas can be viewed as an offset against such concerns, but making the case presents an interesting challenge.

A little over a month ago I predicted that 2014 was going to be tipping point in terms of the velocity of industry restructuring moves in virtually every market sector of ICT globally.  It is only the first week in February and the list of assets being reshuffled is already very longer, and as this proves is getting longer very quickly.  In two words, “stay tuned!” Things are about to really warm up.