Alcatel-Lucent to cut jobs as part of turnaround

[Mrs. Sharon B. Hodge]

Alcatel-Lucent to cut jobs as part of turnaround
By GREG KELLER, AP Business Writer



PARIS – Alcatel-Lucent SA said Friday it will eliminate another 1,000 white-collar jobs as part of its newly installed chief executive's plan to return the company to profitability.

The Paris-based maker of networking equipment for fixed and mobile telecommunications operators also intends to cut 5,000 contractor jobs in measures aimed at saving euro750 million ($991 million) by the fourth quarter of 2009, the company said in a statement.

Investors dumped the stock on the news. In early Paris trading Friday, Alcatel-Lucent shares sank 8.8 percent at euro1.69 ($2.23). The stock was the biggest percentage loser in the CAC 40 index which fell 4.4 percent to 3,160 — down with many major indexes over the failure of a U.S. auto bailout plan.

In a statement, Alcatel-Lucent said the cuts could help it break even at the operating level next year. It hasn't made a profit since the company was formed through Alcatel SA's purchase of Murray Hill, New Jersey-based Lucent Technologies Inc. for $11.4 billion in 2006.

CEO Ben Verwaayen, who took over in September following the removal of Patricia Russo, said the cuts would make Alcatel-Lucent a "more agile" company by stripping out layers of management.

Verwaayen, who is credited with transforming British telecommunications operator BT Group PLC into a broadband Internet powerhouse during his tenure there earlier this decade, was brought in to pull off similar results at Alcatel-Lucent.

Speaking on a conference call with reporters, newly appointed Chief Financial Officer Paul Tufano warned that 2009 would be a "challenging year," with the company forecasting the overall market for telecommunications equipment to contract by 8 to 12 percent.

Tufano said that the measures announced Friday would give the company "substantial momentum going into 2010," but neither he nor Verwaayen would say when the company would make a net profit.

The new job cuts come on top of Alcatel-Lucent's previous plan which calls for the elimination by the end of next year of 16,500 jobs out of a total work force at the end of 2007 of 76,410.

Verwaayen said Alcatel-Lucent will shift investment to technologies in which it is either already a leader or which it has targeted for development, such as LTE, W-CDMA, and enhanced packet core. The company will also cut its offerings in aging technologies such as CDMA, GSM and ADSL.

Verwaayen said the ensemble of measures amounted to "a new purpose for the company" in helping telecom service providers and corporate clients reap better value and benefit from changes in the Internet.

The company's shares have lost around 85 percent since the company was formed, as it has struggled to integrate its two halves and compete with emerging Asian rivals such as China's ZTE Corp. and Huwei Technologies Co.

As part of its transformation Alcatel-Lucent also plans to sell its nearly 21 percent stake in defense contractor Thales SA. Last month the company said it was in exclusive talks with France's Dassault Aviation on a sale of the stake for euro38 a share. Thales shares fell 2.3 percent to euro28.50 on Friday.

On Friday, Verwaayen said Alcatel-Lucent was "making progress" on the sale and that the negotiations were running smoothly.

The Alcatel-Lucent merger aimed to boost margins through savings on expenses and research and development, while improving the joint company's pricing power with telecom operators, its largest customers.

But intense competition in the industry has led Alcatel Lucent to pass many of those savings to customers in the form of discounts, and analysts have said Alcatel-Lucent has not coped as well as some of its competitors.