Alcatel-Lucent Plans 1,000 Job Cuts

By KEVIN J. O’BRIEN

Published: December 12, 2008

Alcatel-Lucent, the struggling telecommunications equipment maker, said Friday that it would cut 1,000 jobs as part of a plan announced by its new chief executive to save 750 million euros, or $991 million.

The job cuts will affect 1.3 percent of Alcatel-Lucent’s 77,000 global work force, disappointing some analysts who had been expecting a more fundamental reorganization from Ben Verwaayen, a former chief executive of the BT Group who took the helm of Alcatel-Lucent in September.

In addition to the 1,000 cuts, the company will trim 5,000 contract workers.

Shares of Alcatel-Lucent fell 9.6 percent in early Paris trading.

“Frankly, this is much less than what the market was expecting the new management,” said Roland Pitz, an analyst at HVB Bank in Munich. “Most of these very modest cost and personnel reductions announced today were already in the pipeline. The market was expecting more structural changes from the new chief executive.”

The company, a trans-Atlantic telecommunications equipment maker, was created in November 2006 with the merger of Lucent Technologies and Alcatel and has struggled since its inception, losing about 5.4 billion euros, or $7 billion, through September.

In taking office, Mr. Verwaayen acknowledged that Alcatel-Lucent had yet to truly merge, with United States and French counterparts resisting needed cost savings.

Also weighing on Alcatel-Lucent is Lucent’s reliance on the American market, where it makes equipment for the prevailing CDMA standard that is a distant second to the GSM standard on 85 percent of the world’s phone networks. A wave of consolidation among operators in the United States has also reduced Alcatel-Lucent’s customers and raised price competition.

Meanwhile in France, where Alcatel has close ties to the French government and holds a stake in Thales, the military contractor, rigid labor laws have hampered efforts to rapidly streamline operations. Since the merger, Alcatel-Lucent has laid off about 9,000 workers globally and has begun to eliminate overlapping product lines.

But the pace of change was too slow and investor dissatisfaction coupled with weakening demand led to the ouster in September of the merger’s architects, the former Lucent chief executive, Patricia F. Russo, who had been Alcatel-Lucent’s first chief, and the chairman, Serge Tchuruk, a longtime Alcatel executive.

Shareholders turned to Mr. Verwaayen, who led BT from February 2002 through May and is credited with a successful turnaround of the former British monopoly after the British government forced it to functionally separate from its landline network in a bid to increase competition. During his tenure at BT, Mr. Verwaayen focused on improving customer service and expanding the company into new businesses like managing corporate networks.

Since coming to Alcatel-Lucent, he has appointed new managers to almost all crucial board and sales positions in Asia, Europe and the United States, drawing from outside the company for about a third of senior positions, said Camille Mendler, an analyst at the Yankee Group in London.

“I think what you are seeing today is not the end but the beginning of a long, fundamental turnaround at Alcatel-Lucent,” Ms. Mendler said. “Ben Verwaayen is a very no-nonsense individual. He completely transformed BT and is the right person to do the same at Alcatel-Lucent.”

In a statement before a conference call, Mr. Verwaayen, 56, announced what he described as a “major strategic reorganization,” refocusing the company into three divisions serving telephone network carriers, businesses and vertical industries supplying the latest network technology based on Internet Protocol, wireless, optical fiber, fixed-line broadband and software applications for operators.

At the same time, Alcatel-Lucent will begin reducing its activity in older-generation networks based on legacy standards like CDMA, the first generation of GSM, WiMax and ADSL, Mr. Verwaayen said.

In addition, Mr. Verwaayen said the company would reduce discretionary spending, refocus its research and development activities and reduce operating costs.

Alcatel-Lucent will reach “about break-even” at the operating level in 2009, Mr. Verwaayen said, amid what he forecast would be an 8 to 12 percent decline in demand for products next year. In 2010, he said, Alcatel-Lucent will generate an operating profit margin of about 5 percent, rising in 2011 to closer to 10 percent.