Amidst the gloom of Alcatel-Lucent's most recent earnings report – a loss of $188 million, with sales down 2.8 per cent – at least one number shines through.
© Joël Côté-Cright
James Watt is president of Alcatel-Lucent's optics activity.
The company’s Internet protocol stream saw revenues jump 29.3 per cent from the same time last year, up to 485 million euros – the equivalent of approximately $617.7 million Cdn.
It’s the telecom equipment maker’s best performing sector, and it includes an IP router more powerful than any other on the market.
Roughly half of that router’s technology comes from Alcatel-Lucent’s research and development facility in Kanata. Most of the 2,300 employees there work on R&D, including IP, optical networks, wireless and network management divisions.
Less than a decade ago, not one person in Kanata was working in the IP division.
“We were literally zero market share (of IP) in 2003,” says James Watt, president of Alcatel-Lucent’s optics activity. “Now we have something like 23 per cent of the market share.”
That comes largely from sales of the 7750 edge router, a device responsible for routing data between networks. The product generates roughly $2 billion in revenues each year.
This May, the company announced the launch of the 7950 core router, a device that sits at the centre of a network and acts as the Internet’s backbone. It’s a move that allows the company to enter the multibillion-dollar business of core routers that is currently dominated by Sweden’s Ericsson and Finland’s Nokia Siemens Networks.
“It’ll be an opportunity to dramatically change the market, and it’s a big opportunity for us,” Mr. Watt says.
The move comes at a time when the demand for bandwidth continues to increase with the explosion of video traffic, cloud applications as well as smartphone and tablet use.
Despite Alcatel-Lucent’s plan to lay off 5,500 employees across the globe, Ottawa could escape relatively unscathed due to its heavy focus on R&D – a facet of the company that won’t experience many cuts, according to a company release outlining the strategic initiative to generate 1.25 billion euros (approximately $1.6 billion Cdn) of savings by the end of 2013.
“Yes, we have challenges, but the business that a lot of people here belong to is just on fire,” Mr. Watt says, referring to IP operations in Ottawa.
The employee count in Kanata has remained relatively stable over the past five years, says media relations manager Sarah Miller. She couldn’t give specifics but says this is a good example of what will likely continue in the future.
As telecom becomes less of a buzzword, it’s harder to compete with new high-tech ventures such as mobile and app development.
“Telecom has always been, aside from a brief moment under the sun during the bubble, the unseen plumbing,” Mr. Watt says. “But having said that, plumbers do pretty well for themselves.”
People forget, he adds, that mobile phones are only mobile from the cell tower to the handset. Up until the tower, data still travels across a wired network. And without the “plumbing,” there would be no Internet for the mobile apps to run on, Mr. Watt says.
“If you look at the guys working on the 7950, the biggest, baddest core router there is … for those guys, I think it’s a pretty good way to change the world, or at least change the way the world communicates,” he says.
Although Nortel is no longer a mogul of Ottawa’s telecom landscape, local competition still exists. Ericsson, Avaya Corp., Genband Inc., Ciena Corp. and Cisco Systems all survive in Ottawa where the technological infrastructure from universities and small businesses supports them with a steady supply of talent.
A Reuters report said rumours have begun to swirl about Alcatel-Lucent’s potential plan to sell its submarine cable division as well as its corporate telephony business in an effort to balance its books. That report named Mitel Networks as a possible bidder for the latter business. Neither Alcatel-Lucent nor Mitel would comment on the speculations.
A recent Bloomberg article stated that Alcatel-Lucent’s revenue per employee was $63,600 last quarter, at least 14 per cent lower than its competitors. This means the company would need to eliminate an additional 10,000 employees to catch up to its rivals, the article stated.
John Reid, president and CEO of the Canadian Advanced Technology Alliance, says any change will unroll slowly at the tech giant.
“It’s a big ship to turn around quickly,” he says of Alcatel-Lucent.
On a broad level, the company notes it sells into a growing market, given that service providers must continuously upgrade their networks to accommodate steady increases in data volume.
Here in Ottawa, Alcatel-Lucent has “some significant internal R&D and management acumen,” according to Mr. Reid, who says he remains excited about the future of the company in the nation’s capital.
He adds the presence of anchors such as Alcatel-Lucent is a key component of the local tech sector.
“It’s a flagship, and it’s very important to have flagships,” he says.
SIDEBAR: James Watt’s Alcatel-Lucent highlight, in his words
"There was an AT&T project called Lightspeed. It was one of the first big IP TV projects. Instead of getting your TV only from a cable company, you could get it over DSL. The overall architecture was designed and provided by Alcatel in 2004. That’s what made it happen.
The first DSL demo was the Time Warner trial in Orlando in 1994. This was close to a dozen years later. Finally, there was an architecture that made it work not just technically but business-wise. It’s not just about the technology, it’s about getting it to the point where the economics work. It only works if they can afford it because they’re a business too. The architecture was key to make the business case doable.
We had a very short period of time to pull off finishing the architecture and getting a proof of concept out to the customer. We had to create a brand new lab from scratch at super high speed ... We had to get ourselves organized, but we did. They told us that it worked. Now, there are I don’t know how many millions of subscribers for Lightspeed. That was a watershed moment."
Came from the merger of Alcatel and Lucent Technologies Inc. in 2006
Headquartered in Paris, France
76,000 employees worldwide
Locations in 130 countries
Ottawa is one of six research and innovation facilities worldwide, alongside Villarceaux, France; Antwerp, Belgium; Stuttgart, Germany; Plano, Texas; and Shanghai, China
Annual revenues of 15.3 billion euros – the equivalent of approximately $19.3 billion Cdn.
Sales distribution: 38 per cent from North America, 30 per cent from Europe, 32 per cent from the rest of the world
More than 29,100 active patents, roughly 2,600 of which were obtained in 2011
Spent 2.4 billion euros (or roughly $3 billion Cdn) in R&D investment to date