Lucent Offshoring Wave Hits Hard

Company keeps cutting headcount, shipping jobs to China and India: 'We're dropping like flies,' says one worker

September 30, 2004

7 Min Read
Lucent Offshoring Wave Hits Hard

Lucent Technologies Inc. (NYSE: LU) chairman and CEO Pat Russo doesn't want you to call it "restructuring," but can you call it "offshoring"?

Lucent is in the midst of a steady reduction in headcount, and it's shipping hundreds of development jobs overseas to India and China, according to a wide range of sources both in and around Lucent. Much of this is focused on Lucent's Integrated Network Services (INS) division, the wireline networking group that was once the company's heart and soul.

"The company is moving all development to India – no ifs, ands, or buts," says one senior Lucent employee. "We're starting to drop like flies."

The senior source says he knows of at least two product divisions in INS where the reduce-and-offshore approach has been implemented in the last few months, and he says the strategy is accelerating. "They are hiring 15 people in India to replace 150 people [that they lay off here]," he notes.

So far in 2004, Lucent has hired 400 people in China; 320 people in the United States; 200 people in the Asia/Pacific region, including India; 190 people in Latin American/Caribbean; and 100 people in Europe/EMEA, according to numbers provided to Light Reading by the company today.

But these new hires are being countered by layoffs at the same time, mostly in North America. Analysts say the new rounds of layoffs will total in the thousands, and could slash as much as much as 10 percent of Lucent's workforce from staffing levels this summer.

Lucent executives say that they continue to look at "puts and takes" and that they are hiring overseas in an effort to cut costs and improve quality. Lucent officials also said that the company is global, and that it must hire internationally to support international customers.

"We are a global company," says Lucent spokesman Bill Price. "There are talented people throughout the world. To remain competitive as a global company, we look at all of our options to make the most efficient and cost-effective use of a global team – inside and outside the U.S. – and to help the company meet its business needs and remain a leading provider of telecommunications equipment for service providers.

"Outsourcing and offshoring are now ways of life for a lot of U.S. institutions."

As of June, Lucent's headcount stood at about 32,300. It had 35,000 employees at the beginning of the year, according to the company. At its peak, Lucent had more than 100,000 employees.

CEO Russo recently addressed an earlier Light Reading article on the headcount reductions in a company memo (see Lucent Cuts Target INS and Lucent's Russo Fights Back). Russo continues to maintain that the company is largely done with restructuring, and that current staffing changes are part of "normal business operations."

So, if headcount continues to decline, where are the cuts coming? Sources say they're happening across the board, but they appear to be focused on INS rather than the more-profitable Mobility and Worldwide Services divisions. Light Reading also reported that more cuts are underway for Lucent's CBX 500 and CBX 3500 products. Several sources now say that, although this product unit has had its engineering headcount reduced substantially over time, the new round of cuts has not yet hit; however, employees are negotiating exit packages now. Expect these layoffs to unfold over the next month or so, say the sources.

Based on information supplied to Light Reading by at least half a dozen sources working either at or close to Lucent, here's an update on what's happened in the last few weeks and what's in the works in the near future.

  • Sources say Lucent is in the process of streamlining the staff of its Landover, Md., business unit that works on the PacketStar PSAX access concentrator products, a product Lucent acquired in 1998 when it purchased Yurie Systems for $1 billion. This could result in the loss of as many as 100 jobs, although much of the maintenance of this product is being moved to new engineers in Bangalore, India. Sources say that some of the engineering jobs may be taken over by employees in Lucent's Westford, Mass., facility. Many of the U.S. employees have already negotiated their exit packages, known in Lucent parlance as a Forced Management Plan, or "FMB."

  • Lucent has all but eliminated a Naperville, Ill., business unit, consisting of at least 50 people that were working on voice switching and its 5ESS circuit-switching products. It has outsourced most of the engineering work to India, sources say.

  • Lucent recently laid off about 20 to 40 employees in a Columbus, Ohio, facility that has employees of both Bell Labs and INS. One source says the facility is in the process of being dismantled and that hundreds more expect to lose their jobs. "They're taking a wrecking ball to it," says the source, a former Lucent employee.

  • Lucent has plans underway to make further cuts to U.S.-based engineers working on its CBX 500 and CBX 3500 product lines, a legacy of its acquisitions of products from the former Ascend Communications and Cascade Communications, say multiple sources. Although the numbers in this case aren't known, one source close to the company says the unit is already down to a few dozen engineers. Lucent executives have denied that this product is in jeopardy of being cut and contend it's fully supported (see Lucent's Russo Fights Back).

  • Lucent appears to be leaning heavily on its development partners, most notably Juniper Networks Inc. (Nasdaq: JNPR), to help it in areas in which it's cutting U.S. engineering talent, several sources say. "The partnership with Juniper is the nail in the coffin for anything inside Lucent," the ex-employee source says. "Lucent will stop investment."

Judging from the feelings expressed in emails and phone calls to Light Reading, the outsourcing moves aren't exactly boosting employee morale. In fact, some employees are furious that Russo continues to publicly say restructuring is over, while internally it's clear what's going on.

"It's all politics," says an ex-Lucent employee who spoke with Light Reading at length. "They're leaving the products to be supported with the VPs and a few staff. They deceive with numbers, but all the folks in the trenches are getting axed."

Many analysts are saying Lucent has no choice in further cutting staff and outsourcing development. It's a matter of cost-cutting to generate profits, they say.

"They are surgical layoffs," says Frank Dzubeck, president of Communications Network Architects. "They are happening in areas where there is no longer growth."

Morgan Keegan & Company Inc.'s Simon Leopold was one of the first Wall Street analysts to see more cost-cutting coming, when he wrote, in a research note issued in August, that he expected the employment reductions to pick up in the second half of 2004 (see Report: More Lucent Cuts Ahead? ).

"We believe Lucent will make unanticipated cost cuts that lead to higher-than-expected FY05 earnings," wrote Leopold.

More recently, Leopold estimated in a research note that Lucent is in the process of cutting another 3,250 jobs, which would put the global corporation under 30,000 employees for the first time.

The bottom line is that Lucent continues to shrink as a company, and it appears to be moving quietly into more outsourcing and reselling relationships. Meanwhile, Lucent's move to outsource development could benefit one of its largest partners – Juniper – which could take over much of the heavy lifting in the multiservice edge portion of the network.

Adding further evidence that Lucent is moving quickly to a reseller strategy, it announced today that it has inked a deal with Riverstone Networks Inc. (OTC: RSTN.PK) to resell Ethernet networking gear to service providers (see Lucent Adds Riverstone to Roster).

Of course, Lucent is not alone in a move to further reduce headcount and ship some jobs overseas. Nortel Networks Ltd. (NYSE/Toronto: NT) is doing similar things, and, as announced this morning, the scale of its staff reductions is similar (see Nortel Details Layoff Plans). Likewise, Lucent's cousin Agere Systems Inc. (NYSE: AGR.A) announced major new layoffs yesterday (see Agere Wields Jobs Axe).

— R. Scott Raynovich, US Editor, Light Reading

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