LUCENT ATTEMPTS A RUSSO RESUSCITATION

Others agreed. Sue Swenson, chairman and chief operating officer for Leap Wireless, said Russo's 20 years of experience will bolster Lucent's executive roster. “The combination of people will strengthen the team already in place,” she said.

While Lucent faces a number of challenges, Russo's understanding of the company and credibility with large service providers — Lucent's target customers — will help, according to John Gonsalves, vice president of Adventis. “Pat Russo clearly can take the company forward,” he said.

Along with spearheading the Lucent restructuring, assessing and augmenting the management team is a priority for Russo. Some sources believe Russo will do little more than rubber-stamp Lucent Chairman Henry Schacht's plans.

“Schact wanted to put his mark on the company, and the only way to do that was to cut everything to bare bones,” said Chris Nicoll, vice president for Current Analysis.

Whether the restructuring plan will do more than reduce losses from once epochal proportions is questionable. Finding cash cows like the Class 5 switches of the past will prove difficult, but Lucent may be able to reinvigorate itself with Schacht's plan of slashing employees, shedding non-core units, targeting top service provider customers and concentrating on its strengths in data networking, optical and wireless equipment.

“Lucent has learned it is now something less than what it was five years ago, but focusing on specific areas will work,” said Sam Greenholz, senior analyst for CIR. “Lucent has turned the corner, and [Russo] will be a steady force in continuing that.”

Still, appointing a Lucent insider amounts to a “lost opportunity” to infuse new blood into the vendor giant, according to Steve Levy, analyst for Lehman Brothers and a professed fan of Russo and Lucent's restructuring plan. “I'm concerned that the management team at Lucent is heavily concentrated with people who have been there for 10 to 15 years,” he said.

How long the management team will remain intact is questionable because many have existing severance protection and retention packages that provide for large payouts with the appointment of a new CEO. Executive Vice President Robert Holder, who heads up Bell Labs, has a retention payment of $4.5 million, while Bell Labs President Bill O'Shea's retention payment is $3.08 million.

Russo seems to think they are worth it. Not even a year ago, Lucent lost $1.2 billion in one quarter, whereas now it has improved to about a $200 million loss. Russo credits that move to the management team.

“I believe in the breadth of talent and expertise, but I sure hope that folks who are in those key positions will stay,” Russo said.

Following the current plan, Lucent intends to become profitable sometime this year. That plan assumes a continued decline in the market, although the company believes it has reached the low point for revenues and expects sequential improvement in the future.

“The communications industry is $200 billion-plus,” Russo said. “We think, as it restores itself and the bubble gets digested, that the industry is going to grow 10% to 12%.”

Still, the path to recovery will not be easy. The company may be forced to cut more jobs and sell off more units if the market doesn't rebound. But Russo said most of the divesting is complete. “The big things are done,” she said.

Meanwhile, Lucent's stock price has fallen to dangerous levels, which would seem to make it a takeover target. But no company appears able to make such a move. A pairing within the industry would be tough to execute, especially considering Lucent's collapsed talks with Alcatel. And a merger with a company from outside the industry such as Intel or GE would be fairly unlikely, said analysts.

“[Telecommunications] is a highly cyclical industry, and we've rarely seen an industrial or capital equipment company acquire a telecom company,” said Ken Leon, telecom equipment global sector head for ABN AMRO.

Given the situation, Russo said Lucent is prepared to proceed independently. “A lot of what Lucent did with Alcatel was well-publicized,” Russo said. “Lucent went back to the drawing, board and said, ‘Hey, we need the Phase 2 plan for going it alone. And that's the path we are on.”