updated 7/29/2008 11:09:38 AM ET 2008-07-29T15:09:38

Both the chairman and chief executive of French telecommunications giant Alcatel-Lucent will resign later this year, the company said Tuesday, as stagnant demand from operators and the weak dollar continued to undermine the promises of their two-year-old combination.

The announcement of the departures of Chairman Serge Tchuruk and Chief Executive Patricia Russo came as the world’s largest fixed and mobile telecom gear maker reported its sixth consecutive quarter of losses.

Tchuruk will step down Oct. 1, and Russo will resign “no later than the end of the year,” the company said in a statement, adding that the search for replacements is to begin immediately.

Alcatel-Lucent shares jumped as much as 6 percent in morning trade in Paris as investors applauded the departure of Tchuruk and Russo. The stock is still down almost 20 percent since the start of the year and 60 percent since the merger was completed.

“There’s been demand for change in management at Alcatel-Lucent for some time, and at last it’s being made,” said Julian Watson, senior analyst for telecoms at Global Insight in London.

Anne-Marie Schluter, a telecoms analyst at Hamburger Sparkasse, said the move will “perhaps give Alcatel a fresh start.”

Alcatel-Lucent reported a net loss of 1.1 billion euros ($1.73 billion) for the second quarter after taking a 810 million euros ($1.3 billion) goodwill write-down, compared with a net loss of 586 million euros a year earlier.

France-based Alcatel acquired Lucent Technologies Inc., a successor to AT&T’s equipment-making arm, in a $11.4 billion deal in 2006. The combined company is in the middle of a restructuring that foresees 16,500 job cuts.

Tchuruk, Alcatel’s longtime chairman and CEO before the combination saw him take on the non-executive chairman role, said in the statement that the resignations were aimed at giving Alcatel-Lucent “a personality of its own, independent from its two predecessors.”

Russo said that although she was “pleased” with the company’s progress, “the company will benefit from new leadership ... to bring a fresh and independent perspective.”

When conceived, the Alcatel-Lucent tie-up was designed to boost margins through cost and research and development savings, while improving the joint company’s pricing power with telecom operators, its largest customers.

The combination was seen as creating the critical mass to compete with the likes of China’s Huawei Technologies Co. and Ericsson AB of Sweden.

But intense competition in the industry means many of the savings have been used on discounts passed on to customers, and analysts said Alcatel-Lucent hasn’t coped as well as some of its competitors.

“Alcatel-Lucent has posted six consecutive quarters of losses, and while Ericsson and Nokia-Siemens have managed to recover, Alcatel-Lucent is still looking to make losses,” Global Insight’s Watson said.

In the second quarter Alcatel-Lucent reported revenue of 4.1 billion euros ($6.5 billion), down 5.2 percent from 4.3 billion euros ($6.8 billion) a year earlier. Sales will stagnate or decline slightly in the third quarter, the company said.

Overall, the company expects the telecom equipment and service market to be flat this year, in line with the forecast of rival equipment makers like LM Ericsson of Sweden.

“Their main weakness is in the carriers segment, the telecoms infrastructure for operators. The other segments are doing pretty well,” Watson said. “Alcatel-Lucent is really struggling to offset declining sales in its old circuit switching technology with offsetting growth in new technologies.”

The departure of Tchuruk and Russo and Alcatel-Lucent’s continued losses two years after their tie-up doesn’t mean the combination is a complete write-off, Watson said.

“It’s not the definitive failure of the merger, in the long term it can still be turned around,” Watson said, “provided they get the right people on board, with a very long experience in the telecoms industry.”

Russo had survived calls for her resignation at Alcatel-Lucent’s annual shareholder meeting in May, where she was barraged with jeers and whistles by investors furious over the company’s performance. Alcatel-Lucent’s stock price has fallen by over three-fifths since the tie-up, and the company has yet to post a profit.

Russo was criticized by shareholders not only for the shares’ slide, but also for her demeanor, her inability to speak French and, above all, her salary. In 2007, she was paid 1.8 million euros ($2.79 million) including benefits.

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