Mike Quigley

Because he lived in Australia for most of his life, Mike Quigley can be forgiven for making constant analogies between the telecom industry and water. As last year's Summer Olympics taught the world, Aussies are nuts about the water.

Quigley's market views are perhaps best understood in the context of the world's tides that ebb and flow. Unfortunately for Alcatel Americas, the current “rationalization” of the market is something close to low tide. The goal is to retreat with the water and not end up like all the beached fish gasping for oxygen.

In the telecom world, the trend for carriers in 2000 to stock up on infrastructure, particularly DSL gear, led to an oversupply of equipment and a rough ride for vendors.

“The rates at which they were growing, a lot of our customers were building inventory,” says Quigley, president of Alcatel Americas and CEO of Alcatel USA. “That just ripples through the industry, and in particular, the vendor supply chain. To me, the supply chain has to be washed through.”

Brad Baldwin, director of broadband technologies at IDC, said the market right now is flooded with equipment that is underutilized. By the end of 2000, there were about 2.3 million DSL subscribers worldwide, according to IDC estimates. However, vendors have shipped about 9 million ports in the same time frame.

“That's a huge overcapacity,” says Baldwin. “There's four times more equipment shipped than actual paying customers. You need some overcapacity, but I say that's too much.”

Put more succinctly, Martin De Prycker, CTO of Alcatel, adds, “our customers are continually adding customers, but we are shipping less. The growth in North America is definitely going down.”

Making predictions of future growth, while necessary, is a dangerous game. Like most vendors, Alcatel willingly took part in the telecom frenzy of the past few years, building up operations through acquisitions and internal growth. And like most others, it has led to layoffs. For Alcatel, the day of reckoning came April 2, when the company publicly announced that it would lay off 1100 employees.

“There weren't any structural changes,” says Quigley of the layoffs. “We were just refocusing. Our focus wasn't so much on costs as it should have been.”

More important, according to Quigley, the layoffs were anticipated by most within the company. “Everybody is always a little concerned when you announce a layoff. But people weren't that surprised,” he says.

Looking back, Quigley thinks things could have been much worse. Though critics said the company would get left behind in the fast-paced emerging packet-based telecom world, Quigley credits fiscal conservatism as an asset now.

“We were very careful with vendor financing,” he says. “We passed up deals that our sales people wanted to go after. Some of these start-up companies wanted 150% financing. We were also very careful in the companies we were doing business with.”

Alcatel is likely to come out of this storm looking basically the same in the U.S.

In optical, the company will be competing against a slew of start-up competitors that have significantly lower cost structures. Given the tightness of the capital markets, however, many of those competitors may be looking for a quick buyout at fire-sale prices.

In the DSL market, where Alcatel holds the top market share spot thanks to its acquisition of DSC Communications, the company's misfortunes of 2000 have actually helped because Alcatel did not win deals with the many of the pure-play data CLECs, Quigley adds.

Alcatel hasn't been unscathed, though. “If you look at the big three — SBC, Verizon and BellSouth — what we're seeing there is a correction,” says Quigley, noting that while SBC has stopped taking delivery of equipment, the other two continue to accept gear. “They're taking a breath, but ADSL still has plenty of legs to it.”

But in other key markets, particularly ATM, the company has ground to make up. When it acquired Newbridge Networks last year, it gained a player with a strong European ATM customer base, but little in the U.S. And while not fulfilling the global ambitions of Alcatel corporate, its acquisition of Newbridge filled a gap, according to Quigley. “We had some internal developments that frankly didn't work.”

Quigley's goal is to avoid a repeat of that scenario as carriers make the slow transition between circuit and packet networks. In the process, he wants to bring a little flair to the company.

“The culture of Alcatel is focused very much on engineering,” he says. We're clearly not as good as some of our U.S. competitors at marketing. I don't have any concerns about Alcatel technology — I have more macro concerns.”