Industry News
Alcatel and Lucent Technologies to Merge and Form World's Leading Communication Solutions Provider
Representatives of Alcatel and Lucent Technologies announced that they have entered into a definitive merger agreement to create the first truly global communications solutions provider with the broadest wireless, wireline and services portfolio in the industry. The primary driver of the combination is to generate significant growth in revenues and earnings based on the market opportunities for next-generation networks, services and applications, while yielding significant synergies. The combined company's increased scale, scope and global capabilities will enhance its long-term value for shareowners, customers and employees.
The transaction, which was approved by the boards of directors of both companies, will build upon the complementary strengths of each company to create a global leader in the transformation of next-generation wireless, wireline and converged networks.
The combined company, which will be named at a later date, will have an aggregate market capitalization of approximately Euro 30 billion (USD 36 billion), based upon the closing prices on Friday, March 31. Based on calendar 2005 sales, the combined company will have revenues of approximately Euro 21 billion (USD 25 billion), divided almost evenly among North America, Europe and the rest of the world. As of December 31, 2005, the combined companies had about 88,000 employees.
The combined company will have:
- A strong financial base and achieve annual pre-tax cost synergies of about Euro 1.4 billion (US$ 1.7 billion) within three years, a substantial majority of which is expected to be achieved in the first two years
- The largest and most experienced global services and support organization in the industry
- A leading position in communications solutions, with the broadest wireless and wireline portfolio
- Deep and strong, long-term relationships with every major service provider around the world
- A growing momentum in high-end enterprise technologies and markets, including mission critical safety and security applications
- The industry's premier R&D capabilities, including Bell Labs, with 26,100 R&D engineers and scientists throughout the world
- An experienced international management team with a common vision and proven track record
- An enhanced global foot print and diversified customer base with a presence in more than 130 countries
The cost synergies are expected to be achieved within three years of closing and will come from several areas, including consolidating support functions, optimizing the supply chain and procurement structure, leveraging R&D and services across a larger base, and reducing the combined worldwide workforce by approximately 10 percent. The merger also will result in approximately Euro 1.4 billion (USD 1.7 billion) in new cash restructuring charges, with the charges to be recorded primarily in the first year. A substantial majority of the restructuring is expected to be completed within 24 months after closing. The transaction is expected to be accretive to earnings per share in the first year post closing with synergies, excluding restructuring charges and amortization of intangible assets.
The combined company will be managed by a team that reflects a balance between the two organizations, taking into account the best talents of each company and the multicultural nature of its workforce. Beginning immediately after closing, there will be a Management Committee that will work towards this end, while ensuring continuity in the management of the two companies. This Management Committee of the combined company will be headed by Patricia Russo, CEO, will also consist of Mike Quigley, COO; Frank D'Amelio, Senior EVP, who will oversee the integration and the operations ; Jean-Pascal Beaufret, CFO; Etienne Fouques, EVP, who will supervise the emerging countries strategy; and Claire Pedini, Senior VP, Human Resources. Additional organization and management team announcements will be made at a future date.
Between signing and closing, Serge Tchuruk and Patricia Russo will supervise an integration team to be nominated shortly, which will seek to ensure that synergies will start to be realized as soon as closing takes place.
Under the terms of the agreement, Lucent shareowners will receive 0.1952 of an ADS (American Depositary Share) representing ordinary shares of Alcatel (as the combined company) for every common share of Lucent that they currently hold. Upon completion of the merger, Alcatel shareholders will own approximately 60 percent of the combined company and Lucent shareholders will own approximately 40 percent of the combined company. The combined company's ordinary shares will continue to be traded on the Euronext Paris and the ADSs representing ordinary shares will continue to be traded on the New York Stock Exchange.
The combined company created by this merger of equals is incorporated in France, with executive offices located in Paris. The North American operations will be based in New Jersey, U.S.A., where global Bell Labs will remain headquartered. The board of directors of the combined company will be composed of 14 members and will have equal representation from each company, including Tchuruk and Russo, five of Alcatel's current directors and five of Lucent's current directors. The board will also include two new independent European directors to be mutually agreed upon.
The combined company intends to form a separate, independent U.S. subsidiary holding certain contracts with U.S. government agencies. This subsidiary would be separately managed by a board, to be composed of three independent U.S. citizens acceptable to the U.S. government. This type of structure is routinely used to protect certain government programs in the course of mergers involving a non-U.S. party.
The combined company will remain the industrial partner of Thales and a key shareholder alongside the French state. Directors to the Thales board who are nominated by the combined company would be European Union citizens. Serge Tchuruk, or a French director or a French corporate executive of the combined company would be the principal liaison with Thales. Furthermore, the board of Alcatel has approved the continuation of negotiations with Thales with a view to reinforce the partnership through the contribution of certain assets and an increased shareholding position in Thales.
The merger is subject to customary regulatory and governmental reviews in the United States, Europe and elsewhere, as well as the approval by shareholders of both companies and other customary conditions. The transaction is expected to be completed in six to twelve months. Until the merger is completed, both companies will continue to operate their businesses independently.
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IBM and Fudan University Study Identifies Chinese Companies and Industries Most Likely to Expand Globally Over Next Ten Years
Research undertaken by IBM and Fudan University, and released Tuesday, has found that Chinese companies are expanding globally to acquire technology and management skills, escape intense domestic competition and capture new market opportunities. The report, an in-depth analysis of the motivations, rationale, and challenges facing China's companies as they expand globally, identifies 60 companies and the industries best positioned to succeed internationally over the next ten years as well as the attributes necessary for success.
Based on criteria including company size and characteristics as well as industry structures, the companies identified in the report: "Going Global: Prospects and Challenges for Chinese Companies on the World Stage" as being well positioned to become global players over the next ten years include: Haier (home appliances), Galanz (home appliances), Wanxiang Group (auto parts), Cosco (logistics), Lifan (motorcycles), BaoSteel (steel) and Huawei (telecom equipment).
Industries most likely to see the entry of Chinese companies are energy, steel, automotive, logistics, computers, brown goods, white goods, telecommunications equipment, textiles and consumer products.
Companies considering global expansion identified the lack of qualified human resources and weak global brands as the top two challenges facing Chinese companies expanding overseas. Interviewees indicated a need to not only strengthen their management team for global expansion, but to also compete against foreign companies in China's own domestic market. Mergers and acquisitions and strategic partnerships with foreign companies, despite their significant integration challenges, were cited by Chinese interviewees as important ways to shorten the time required to develop a global management team and build global brands.
Since 2001, when China entered the WTO, foreign companies have invested US$621 billion in China, US$60 billion in 2005 alone. In comparison, outbound direct investment (ODI) in 2004 was US$1.8 billion, accounting for only 0.25 percent of global ODI, ranking China 28th among all countries. As China's overseas investment restrictions are relaxed or abolished in 2006, a sharp rise in ODI and merger and acquisition activity is expected. China's Ministry of Commerce predicts outward investment will maintain an average annual growth of over 22 percent, exceeding US$60billion in new ODI between 2006 and 2010.
"Going Global: Prospects and Challenges for Chinese Companies on the World Stage" found that global success will be predicated on a globalization strategy that determines how a company will differentiate itself to capture value, identify the right business model for global expansion, and prioritize target countries for market entry. The report outlines four critical success factors to be addressed by Chinese companies wanting to go global:
Differentiation through branding and innovation
Virtually all successful global companies differentiate themselves in terms of both brand and innovation. Excellence in at least two dimensions -- product or process innovation, and industrial or consumer brand -- is almost always required.
While most Chinese companies remain anonymous contract manufacturers with little or no global consumer branding power, some companies are building from their origins as low-cost leaders to become innovative, branded players. Chinese companies are also looking to Asian companies, such as those in Taiwan and Korea, to learn how they have gradually built up their innovation and branding capabilities.
Business model innovation
Business model innovation is emerging as a new strategic differentiator for high performing companies. There is a continuum of investment options, ranging from simple exports to mergers and acquisitions that companies should consider when developing the appropriate business model to globalize. Chinese companies are considering a combination of investment options -- for example, greenfield in certain countries and strategic alliances in others -- depending on the company's tolerance for risk, ability to manage complexities, financial resources and management capabilities.
Market entry strategy
There is no single "right" market entry strategy for Chinese companies pursuing global expansion. For OEM manufacturers with significant exports, a strategy may be to gradually build their globalization capabilities by maintaining their OEM relationships with U.S. and European customers while pursuing emerging niche markets in Asia, Africa and Latin America with their own brands.
For Chinese companies with limited global experience, they often prefer to enter developing countries before trying to enter advanced markets such as the U.S. and Europe. Companies such as Huawei and ZTE (telecommunications equipment) and Geely and Chery (automotive) are pursuing this strategy. On the other hand, companies such as Haier are pursuing advanced markets in the US and Europe first and leveraging this experience to compete more effectively with multinationals in China and other countries.
Execution imperatives
The report identified five key execution imperatives for companies expanding globally. These include: building a global management team; developing a brand strategy; implementing a global operating model; focusing on product innovation; and focusing on process innovation.
Strong execution will be challenging for Chinese companies not accustomed to managing sprawling global enterprises with the support of standardized processes and systems. For example, the domestic operations of many state-owned enterprises are run in a decentralized manner with significant differences between provinces -- the opposite of what is needed to manage a global enterprise effectively and capture economies of scale.
"Going Global: Prospects and Challenges for Chinese Companies on the World Stage" is based on extensive industry and company analysis and face-to-face interviews with more than 40 Chinese companies, advisors and industry experts, conducted by IBM's Institute for Business Value in China in cooperation with the Fudan University School of Management.
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U.S. Air Force Awards Contract to Lockheed Martin
Lockheed Martin received a U.S. Air Force task order totaling more than US$32 million for the development of a Weapon Data Link (WDL) capability that will enable the extended-range JASSM system to engage relocatable and time-critical targets. The JASSM air-to-surface standoff missile system is the world's first stealthy conventional cruise missile.
The WDL will provide the JASSM-ER with two-way, secure, beyond-line-of-sight-communications capability with the Combined Air Operations Center (CAOC). The COAC may send target location updates and changes to the missile while it is in flight. The missile will report its position and status until impact. This communications link will provide the warfighter with an increased capability to engage relocatable and time-critical targets and is a key enabler of a future maritime interdiction capability in the missile.
The WDL system will use the standardized data link architecture for network-enabled weapons developed by a joint service Weapon Data Link Network (WDLN) Advanced Concept Technology Demonstration (ACTD) program. Lockheed Martin was a key participant in the WDLN ACTD whose primary purpose was to specify, design, implement and demonstrate standardized tactical weapons communications architecture. The JASSM-ER will be the first cruise missile to use the military's standardized data link architecture for network enabled weapons.
The U.S. Air Force and Lockheed Martin successfully demonstrated the WDL capability during flight test demonstrations conducted in November 2005. Lockheed Martin ACTD avionics configured with a beyond-line-of-sight-capable WDL transceiver was installed in a test aircraft. During the demonstration, the test aircraft communicated beyond-line-of-sight, weapon in-flight-tracking data and received retargeting data from a simulated CAOC.
A 2,000-pound class weapon with a dual-mode penetrator and blast fragmentation warhead, JASSM-ER will cruise autonomously in adverse weather, day or night, using a state-of-the-art infrared seeker in addition to the anti-jam GPS to find a specific aimpoint on the target. Its stealthy airframe makes it extremely difficult to defend against. The missile is planned for initial employment on the B-1B aircraft platform. Structural testing confirmed that the JASSM-ER missile design will be compatible with the B-2, B-52 and F-16 aircraft that currently employ JASSM. The extended range cruise missile has a range greater than 500 nautical miles.
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Ericsson and Jawwal Sign EDGE Contract in Palestine
Ericsson was awarded with a US$23 million contract for GSM and GPRS expansions with added EDGE capabilities for the entire network. The expansion will enable Jawwal, Palestine's leading mobile operator, to offer mobile broadband services to 1 million subscribers with EDGE capability.
The contract includes service layer products, such as charging solutions and automatic device configuration (ADC), as well as consulting services.
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U.S. Army Awards General Dynamics $22 Million for Abrams Tank System Technical Support
The U.S. Army TACOM Lifecycle Management Command has awarded General Dynamics Land Systems, a business unit of General Dynamics, a US$22.3 million contract for M1A1 Abrams tank systems technical support (STS).
STS funds engineering studies on Abrams tanks with the purpose of identifying improvements and conducting the change-out of obsolete parts, while keeping Abrams tanks current to their base configurations. The STS program's objective is to maintain Abrams tanks at high operational readiness rates.
This contract enables the application of various kits to M1A1 tanks around the fleet. Additionally, it funds reset work. Through reset, General Dynamics employees service, repair and modify Abrams tanks returning from Iraq to a pre-combat condition and reissue them to Army units prior to their next deployments.
Work will be performed by existing General Dynamics employees at various U.S.-based military installations and is expected to be complete by Dec. 31, 2006.
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Fujitsu Announces Merger of Hardware and Software Subsidiaries
Representatives of Fujitsu Computer Systems Corporation, a wholly-owned subsidiary of Fujitsu Limited, announced the company has merged with Fujitsu Software Corporation, a leader of application infrastructure software products, including the Interstage® Suite and NetCOBOL. The new company, which retains the name Fujitsu Computer Systems, will be better positioned to deliver the most complete enterprise computing solutions for customers and will accelerate Fujitsu's ability to deliver on its TRIOLE strategy for creating highly reliable and adaptive business-critical IT infrastructure that meets the real-world needs of customers in healthcare, financial services, government, and other markets.
A key rationale for the merger is Fujitsu's TRIOLE strategy, which focuses on the most pressing business challenges of Fujitsu's customers and aligns technologies, services, and standards to ensure customers achieve greater agility and efficiency with less complexity. This is accomplished by remaining focused on business benefits, designing technology solutions that deliver these benefits, and then working with customers and partners to ensure targeted and affordable implementations.
As enterprises look to implement service-oriented architecture (SOA), compliance, and consolidation initiatives for their next-generation data centers, the new Fujitsu Computer Systems will be able to provide the hardware infrastructure and integrated software to support these efforts in North America. The combination of leading-edge hardware, scalable software, and high-quality services enables Fujitsu to provide enterprise customers with better flexibility in building applications and managing processes, while leveraging existing infrastructure investments.
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EMC, Intel Form OEM, Technology Relationship
Representatives of EMC Corporation and Intel Corporation announced Tuesday a multi-year storage original equipment manufacturer (OEM) and expanded technology agreement focused on the growing storage requirements of small- and medium-sized businesses (SMBs).
As part of the agreement, Intel will offer a networked storage system based on the EMC® CLARiiON AX150, introduced yesterday, to Intel resellers and distributors worldwide. Resellers will offer the easy-to-use, cost-effective system to customers under their own private brands and labels. Intel has more than 160,000 distributors and resellers around the world, with a strong presence in Asia-Pacific, Eastern Europe and South America.
EMC CLARiiON networked storage systems utilize Intel processors to achieve price performance leadership in the midrange storage segment. As part of this relationship, EMC and Intel have agreed to future collaboration that will help Intel enhance its processors to meet the increasing requirements of networked storage systems and help EMC to enhance its storage architectures and identify future market requirements.
The Intel SSR212PP Storage System based on EMC CLARiiON AX150 technology is expected to be available from participating Intel channel members worldwide beginning in May. Featuring up to 12 serial ATA II (SATA II) disk drives in a 2U rack mountable enclosure, the Intel SSR212PP networked storage system can support a maximum capacity of six terabytes in a single array. Offered in single- or dual-controller configurations, this easy-to-install storage system provides SMBs with advanced features and the security of redundant power and cooling functionality. It is available for iSCSI or Fibre Channel for flexible direct attached storage (DAS) or storage area network (SAN) connectivity.
This is the latest in a recent series of collaborative activities between EMC and Intel. In March, Intel and VMware, an EMC subsidiary, announced a broad collaboration to bring the benefits of virtualization to enterprises and new market segments. Also, earlier in March, it was announced that EMC and Intel were two of several founding members of the Storage Bridge Bay Working Group. Storage Bridge Bay is a new open platform for storage innovations to benefit customers through standardization.
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TAAG Selects Rockwell Collins enCompass for In-flight Entertainment Services
TAAG Airlines signed a two-year contract with Rockwell Collins' in-flight entertainment services group, enCompass, to provide a total media solution to TAAG's Boeing 777-200 and Boeing 737-700 aircraft.
Under the terms of the agreement, enCompass will provide TAAG with a total solution for its in-flight entertainment offerings ( IFE), including: competitive analysis, marketing strategy, design services, audio and video selection and licensing, IFE usage analysis and technical encoding and integration services.
Rockwell Collins' enCompass group provides media solutions to airlines worldwide. The enCompass team of experts have backgrounds in multi-media strategy, branding, design, film, radio, television and IFE system development.
