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Alcatel-Lucent Job Cull Hits 12,500

Alcatel-Lucent (NYSE: ALU) fleshed out its additional cost-cutting plans Friday morning by announcing that its post-merger headcount reduction would total 12,500 staff, up more than 3,500 from the initial 8,800 to 9,000 it had signaled last year. (See Alcatel-Lucent Reports Q4.)

When Alcatel and Lucent first announced their merger plan in April 2006, they said that about 10 percent of the total combined workforce of 88,000 would lose their jobs in the three years following the marriage. (See Alcatel, Lucent Seal Deal.)

But trading conditions during the second half of 2006 were tougher than expected, leading to a late January profit warning that was announced only weeks after the merger had closed. The vendor said then that additional cost savings would need to be found, so additional job cuts were anticipated. (See Alcatel-Lucent Suffers Stock Shock .)

The new total of 12,500 job cuts means Alcatel-Lucent is slimming its employee count by just more than 14 percent -- a move that, as long as it isn't revised further, would leave the company with about 75,000 staff by the end of 2009.

"These are difficult but necessary decisions, and we will manage these reductions with care," stated AlcaLu's CEO Pat Russo in a prepared statement. "We are committed to serving our customers' needs, with a competitive cost structure and effective operating model. We will maintain the appropriate workforce level to do that."

News of the additional cull comes just two days after Nortel Networks Ltd. announced it is cutting 2,900 staff during the next two years to reduce its operating costs, and weeks after Motorola Inc. (NYSE: MOT) said it is making 3,500 staff redundant. (See Nortel Slashes Jobs and Motorola Profit Falls 48%.)

The additional job cuts means AlcaLu will reduce its costs by €1.7 billion (US$2.2 billion) during 2007-2009 inclusive, up from the original target of €1.4 billion ($1.82 billion). The company says €600 million ($780 million) of those savings will be made during 2007.

Investors liked the news, as the vendor's stock jumped €0.23, about 2.3 percent, to €10.38 on the Paris Exchange. That's still some way short of the €10.95 price the stock commanded before the recent disappointing trading update for the fourth quarter.

Overall, Alcatel-Lucent's fourth-quarter and full-year financials were in line with the numbers revealed in late January, with one-time charges of €577 million ($749 million) landing the vendor with a €618 million ($803 million) net loss for the quarter. (See Alcatel-Lucent Reports Q4.)

And the near-term outlook isn't encouraging either. In her statement, Russo noted that the "challenging market conditions" and impact of "short-term uncertainty for both our customers and our people" that affected the fourth quarter's results are lingering, and will result in "some revenue decline in the first quarter 2007." She added that revenue growth would resume later in the year, and that revenues for 2007 are expected to grow year on year, in percentage terms, in the mid-single digits.

Five percent growth over 2006 would take this year's revenues to €19.2 billion ($25 billion).

London-based Nomura Securities analyst Richard Windsor notes that a decline in first-quarter revenues is "worse than almost all competitors and it is clear that Alcatel-Lucent is going to underperform the market and its peers for the next quarter at least."

And in a research note issued this morning, Windsor adds that Russo and her team have their work cut out to meet the full-year revenue target, as it would require market share gains during the second half of the year. "We believe this will be difficult as the company will be focused on cutting costs rather than growing share," leading to the risk that revenue expectations could be missed again. "We believe there is scope for more disappointments over the course of 2007," the analyst concludes.

— Ray Le Maistre, International News Editor, Light Reading

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