At its 1996 results announcement, Alcatel-Alsthom chief executive Serge Tchuruk declared his intent to double the company’s telecoms revenues, from $12,308m, or 44% of the $28.02bn total, to 85% of the total by the year 2000. Part of meeting that objective will require making a high-volume, profitable business of the company’s heretofore lamentable GSM Groupe Speciale Mobile handset production. Worldwide, unit shipments of digital handsets doubled between 1995 and 1996, and are expected to grow annually by 50%, while revenues will progress 29% between now and 2000, says Staines, UK-based Dataquest Europe. In Europe, where Alcatel makes the vast majority of its sales, Dataquest says digital handset shipments should grow annually by 26%, with revenues up 9% each year, during the same period. The company more than doubled its global production last year to 1million units, keeping its fifth-place overall ranking in Europe, behind Nokia Oy, LM Ericsson Telefon AB, Motorola Inc and Siemens AG, increasing its share of market unit shipments by approximately 1%, to 6.5%, said Peter Richardson, an analyst at Dataquest Europe. Patrick Liot, Alcatel’s vice president of the terminals division, estimates its handset business revenues at approximately $259.3m, although financial analysts say the figure is vague and possibly too generous. But at last month’s Cebit trade show in Hanover, the company demonstrated its intent to remain in the market, introducing a new One Touch line of handsets for the professional and consumer markets aimed at changing the reputation of its GSM terminals.
By Marsha Johnston
In the past, dealers considered Alcatel handsets at best, humdrum models and, at worst, clumsy-looking units, with a negative reputation for reliability among dealers, analysts say. In fact, a little more than three years ago, Alcatel discussed closing down its handset factory in Laval, in Western France. But then the company apparently decided rather to get its act together and take it on the road. In 1994, the entire interior of the factory was redone, putting in more sophisticated climate control and anti-static flooring and Andersen Consulting installed SAP AG’s logistics system. The plant is to get three new automatic production lines this year, bringing Alcatel’s two French plants to a total yearly capacity of 5 million units. It is also planning to open a factory in China, since Asia will account for over one third of the total GSM market in 2000, Liot said. Alcatel’s existing production sites produce three One Touch models-One Touch Easy – consumer, One Touch Pro – professional and One Touch COM, its first stab with Sharp Corp at an integrated organizer/cell phone. Easy is a design departure from Alcatel’s clunky military look, with rounded edges and a sliding protective cover, and 10 designer colors. It also has the unusual feature of being able to work with three ordinary AA alkaline batteries. Incredible as this sounds, surely users would have to change them three times a day, Dataquest’s Richardson says they will provide 2 hours talk time and about 60 hours standby. The Pro is definitely on a par with rivals, as one Paris consultant said it is at 15mm, slimmer than Ericsson’s latest model and almost as light, at 145g. It also has a 15-character LCD display and will hold up to 200 directory entries. In 1996, Alcatel’s product range was okay, a bit me-tooish, said Richardson, but in ’97, the product line is heading in the right direction, looking better than it ever has. They are focusing on market seg- mentation, and their strategic alliance with Sharp is great, due to Sharp’s core competence in LCD technology. Nonetheless, Richardson acknowledges that the COM is a first model, having been criticized by competitor Nokia at Cebit as awkward for its use of a stylus to input notes and drawings. Saying it has secured high-volume distribution channels for its new line, including France Telecom, Alcatel has committed to tripling its handset production this year. Financial analysts are skeptical, no
ting that even with tripled production, the incessant decline worldwide in handset prices will make it difficult to realize any big profit. And that could be a problem, said Denis Branche, an electronics analyst at Paris-based Cholet Dupont, since Alcatel is far from break-even in its mobile terminals business; they expect to break even at the end of ’97 or early ’98. In such a case, Alcatel may have to rely on its transmission and network access equipment businesses for growth and profitability, both of which are said to be in the black and showed order increases of 62% and 70%, respectively. Among the promising areas for the company there is ADSL, the technology for increasing transmission speed over copper wire. While Dataquest’s Richardson admits that the handset industry will be tough this year, possibly causing some consolidation, he contends that Alcatel may be profitable due to its fo cus on using GSM features to implement value-added services, which allows it to charge a premium. In co-branding telephones with operators like Cellnet and companies like Barclay’s Bank, Alcatel uses a variety of stage-two GSM features to implement services specific to that company. That’s their edge. Admittedly, it’s an advantage that won’t last too long, but long enough to create a market position. I was really impressed with what they are doing, Richardson said.
Second generation
Liot told Computergram that Alcatel will soon be introducing the second generation of Cellnet co-branded phones, since a study showed that the customer churn rate on the Barclay’s Bank phones was much lower than normal. Alcatel expects to concentrate on co- branding, something already seen in the shift in its sales split between 1995 and 1996. In 1995, Alcatel sold only 4% dual-branded phones, 40% OEM customer phones and 56% Alcatel-branded handsets. In 1996, that mix had changed to 56% dual-branded, 15% OEM customer and 29% Alcatel. Acknowledging that Alcatel must increase its brandname recognition, it has embarked on a co- marketing program with Duracell, for example, to sell the appropriate batteries for the One Touch Easy. Alcatel is also manufacturing DECT handsets, of which Liot expects to sell between 3-4 million this year, primarily in Europe. It gives you the ability to plug in your personal computer without installing a new line [for digital transmissions], he said. It will also introduce a type of Webphone, with a touch screen and complete browser with one-touch Internet access, early next year. However, Liot added that the company is focusing on GSM, which represents 60% of the world market. While Alcatel is relatively new to the GSM terminal market, it is not unfamiliar with its peculiarities. It’s funny to see what has happened with GSM terminals being sold for $1 and to remember how we were criticized 15 years ago for subsidizing Minitel terminals. The press, particularly US press, would say, `No one in business would EVER do that!’ But they adopted the same philosophy: subsidizing the terminal because it generates revenue!, he said. Alcatel is obviously hoping to replicate its 15-year-old success.
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