The disastrous first chapter of the Alcatel-Lucent story ended on Tuesday, after chief executive Patricia Russo and chairman Serge Tchuruk bowed to pressure from shareholders and said they would quit the unprofitable Franco-American network supplier by the end of the year.

But this doesn't mean the story is over.

Although it could be one to two years before Alcatel-Lucent finally manages to turn a net profit, new management is exactly what the company needs to have a serious hope of turning itself around. The merger between France's Alcatel and the American firm Lucent in 2006 has not proven its worth two years on, but strong management and perhaps even asset disposals could change things.

"I would hope that new management can bring in a new feeling of optimism, rally the troops together and pull this business out of the doldrums," said Richard Windsor, analyst with Nomura International. Although the slowdown in network investment has hurt rivals like Ericsson and the joint venture between Nokia and Siemens, Alcatel-Lucent's own problems outweigh the sector's.

Shares in Alcatel-Lucent rose 13 euro cents (20 cents), or 3.5%, to 3.96 euros ($6.22), during afternoon trading in Paris, despite reporting a net loss of 1.1 billion euros ($1.7 billion), for the second quarter. Although the underlying business came in slightly ahead of estimates, Alcatel's net loss was far worse than expected because of an 810 million-euro ($1.3 billion) write-down on its CDMA unit.

CDMA is a type of network technology that is mainly used in the United States and parts of Asia. Lucent's specialty in this area was one of the factors that attracted Alcatel to buy it in the first place, but the trickle of goodwill write-downs suggests that the merger deal overestimated the future potential of CDMA.

Nomura's Windsor told Forbes.com that Alcatel-Lucent was losing CDMA market share to Nortel Networks, and that the current management seemed to have given up on staying competitive in this segment.

A spokesperson for Alcatel-Lucent said the company had launched a public search for replacements for Russo and Tchuruk, but that no comment could be made on the criteria for suitable candidates. Tchuruk intends to depart in October, while Russo is slated to leave by the end of the year.

Source:forbes.com