Alcatel-Lucent increases job cuts to 12,500

Alcatel-Lucent increases job cuts to 12,500
By Victoria Shannon
Copyright by The International Herald Tribune
Published: February 9, 2007

PARIS: A cloud of uncertainty among the world's phone companies left Alcatel-Lucent with a bruising net loss Friday in its first quarterly report as the world's largest telecommunications equipment maker, and the company moved to eliminate thousands more jobs.

The company cited "challenging market conditions," hesitation from its customers and challenges from regulators, and it raised the number of jobs it was eliminating as part of its merger by 3,500 to a total of 12,500 positions.

The cascade of negative announcements seemed to give critics of the $11.6 billion merger of Alcatel with Lucent Technologies, first proposed in March and officially completed Dec. 1, some validation of their doubts.

But Patricia Russo, the chief executive of the company, cast the balance of the year in a positive light, saying that some of the factors that led to the "disappointing" loss — €618 million, or $804 million, compared with a €381 million profit a year earlier — would not recur. She cited customer uneasiness as the merger closed, and the consolidation of some of its biggest customers, AT&T, BellSouth and SBC, into one company.

Alcatel-Lucent, posting results for the first time as a combined company, said revenue, which declined 16 percent in the latest quarter to €4.4 billion, would show only minimal gains before April.

But the company forecast that for all of 2007, revenue would keep steady with the growth in the phone carrier business, a number it estimated at about 5 percent. Last year, sales came in at €18.25 billion, 1.7 percent lower than in 2005. All the figures were calculated on a pro-forma basis, as if the two companies had been combined for the entire period. Alcatel-Lucent did not predict 2007 profits or margins.

For the second time, Russo raised the estimate of how much money the merger would save in the long term, to €1.7 billion over three years. In another positive sign, the company said it would keep its dividend of 16 euro cents a share.

Investors seemed not to be overly disappointed, sending the stock down just one cent in Paris, to €10.14. The company had warned Jan. 23 that the quarter's profit would be wiped out, and shares fell 8.5 percent that day. The price is down 7 percent so far this year.

The fourth quarter "was really an extraordinary, exceptional quarter," Jean- Pascal Beaufret, chief financial officer, said during a conference call. It was, Russo added, "not indicative of the long- term growth benefits of the merger."

Still, the company's French unions called a one-day strike for next Thursday to protest the increase in layoffs. Of Alcatel-Lucent's 80,000 total employees at the end of 2006, about 12,000 were in France. Although fewer than 10 percent are unionized, labor leaders said they expected a large number of nonunion workers to join the strike.

Two other major telecommunications hardware makers, Ericsson of Sweden and Nortel Networks of Canada, also recently warned of soft business. Ericsson, which last year bought the British company Marconi, cut its forecast for the mobile-equipment market to "mid- single-digit growth." Nortel said this week it would shed 2,900 jobs over the next two years.

Nokia of Finland and Siemens of Germany, meanwhile, are merging their network divisions into one company to better compete with their European and North American counterparts, as well as with lower-priced competitors in Asia like Huawei Technologies of China.

Alcatel-Lucent combined to strengthen their offerings to phone companies and businesses in wireless, fixed-line and Internet protocol-based networks and hardware. Alcatel is the market leader in DSL equipment, which turns regular copper phone connections into high-speed Internet links.

The increase in job cuts was a result of finding new ways to combine tasks, as well as a response to "what we see happening in the marketplace," Russo said during an interview.

In Europe in particular, Russo said, telecommunications investment was responding to a less-favorable regulatory climate. The European Commission is pressuring companies like Deutsche Telekom to give rivals access to their next-generation networks. The phone companies, which are investing billions of euros in fiber optic and other advanced transmission networks, are resisting.

European Union law requires member states to force telecommunications companies with a dominant market position to open networks on favorable terms to rivals.

"The bottleneck of regulation is short-term because people need the bandwidth — the market demand is there," Beaufret said.