Tomorrow, April 15, 2015 will be the 103rd anniversary of the sinking of the Titanic. The ship that was supposed to be the biggest and greatest ship ever built…until it sunk on its maiden voyage. Bigger didn’t turn out to be better in this case.
Two telecom giants, Alcatel-Lucent and Nokia have admitted to being in merger talks. Together, they would be even more giant. The Titanic of Telecom?
I was working at Lucent Technologies during the height of the telecom bubble peak. They tried to manage 150,000 employees, to direct them against smaller, more nimble competitors such as Cisco (well, at the time, they were still considered small). In 1999, Carly Fiorina, head of Lucent’s Service Provider Group , spent $24 billion to buy Ascend. Way back then, $24 billion was still considered serious money. Soon after spending the money, Carly bailed before the merger proved to be a huge disaster. $24 billion of shareholder money went up in smoke.
Lucent was too big, at least the way that they were organized. So they continued to hemorrhage sales and employees.
The story for Alcatel over this same period was one of a struggle of a large, government-backed company, as it faced smaller more nimble competitors. They also shrank in sales and employees.
In 2006, the management of Lucent and Alcatel decided that the best way to forge forward was to merge. How taking a slow moving dinosaur, and merging it with another, would create the nimble competitor needed was a mystery to me. Since the merger, they have continued to lose money.
So now we are asked to believe that a combination of Nokia and Alcatel-Lucent would save them. I am sure any future announcement would mention synergistic cost savings (maybe), and strategic product and geographic fit (maybe).
But will creating a Titanic of Telecom Manufacturers solve their basic business issues? Can they create innovative products and turn a profit at it? If I owned shares in either Nokia or Alcatel-Lucent, I would not wait around to see.
For Nokia and Alcatel-Lucent non-statements, see http://www.alcatel-lucent.com/press/2015/statement-regarding-nokiaalcatel-lucent-media-speculation and http://company.nokia.com/en/news/press-releases/2015/04/14/statement-regarding-nokiaalcatel-lucent-media-speculation
For more details on the announcement, check out https://ca.finance.yahoo.com/news/nokia-advanced-discussions-acquire-french-telecommunications-company-alcatel-082117852.html