Optical/IP Networks

AlcaLu Cuts 4,000 More Jobs

Alcatel-Lucent (NYSE: ALU) is to cut another 4,000 jobs by the end of 2009 in an effort to boost its margins, the company announced today as it reported its third quarter results.

The company, which began operations on December 1, 2006, with 82,500 staff, announced in February it was reducing its headcount by 12,500. (See Alcatel-Lucent Job Cull Hits 12,500.)

Now the number of staff set to lose their jobs as a result of merger restructuring has risen to 16,500.

Additional staff cuts had been expected following a string of disappointing financial quarters, with CEO Pat Russo under pressure to boost profitability and make the company more competitive. (See Trick or Treat for Russo? and AlcaLu Cuts 2007 Outlook by $1.25B.)

The new restructuring measures also include a major management shakeup that includes the departure of AlcaLu's CFO Jean-Pascal Beaufret.

The news comes only days after rival Ericsson AB (Nasdaq: ERIC) also replaced its CFO following a profits warning. (See Ericsson CFO Steps Down and Profit Warning Slams Ericsson .)

The new job cuts are part of a broader corporate restructuring that involves "streamlining the core carrier business," an "offensive strategy on sectors offering a strong growth potential," and a simplified management structure.

The "streamlining" in the vendor's carrier division involves an "increased portfolio focus on IP transformation of wireline and wireless networks." No further details were immediately available, though Russo is set to elaborate on all the restructuring measures during a conference call later Wednesday. Analysts have been expecting the vendor's wireless infrastructure business to bear the brunt of any restructuring.

The "offensive strategy" includes a greater focus on "high value added services and applications for the carrier markets" and "solutions for the enterprise markets and Industry and Public Sector."

The new business plan should result in cost savings totaling €400 million ($578 million) by the end of 2009. AlcaLu's initial restructuring program was designed to cut costs by €1.7 billion ($2.45 billion).

AlcaLu hopes these new measures can help it achieve gross margins in the high 30s and operating margins of 10 percent or better once all the restructuring is completed.

That's more than two years away, though. In the meantime, "market conditions remain difficult, with continued pressure on revenues and margins due to intensified competition and some slowdown of spending in North America," stated Russo in the company's third quarter press release.

In that quarter, which ended September 30, revenues were €4.35 billion ($6.3 billion), operating income was €70 million ($101 million), and the net loss was €258 million ($372 million), or €0.11 per share. The gross margin was 34.2 percent, and the operating margin just 1.6 percent.

None of those numbers compares well with the equivalent quarter from 2006. (See table below.)

Table 1: Alcatel-Lucent Q3 2007 vs Q3 2006
In � millions except EPS Q3 2007 Q3 2006 (pro forma*)
Revenues 4,350 4,909
Gross profit 1,486 1,925
Operating income 70 430
Net income (loss) -258 532
Earnings per share (EPS) in � -0.11 0.33
* Pro forma numbers for Q3 2006 are calculated as if Alcatel-Lucent had existed as a single entity during 2006. Alcatel and Lucent merged on November 30, 2006.
Source: Alcatel-Lucent

As expected, the main problems lie in the vendor's wireless infrastructure division, where revenues, at €1.28 billion ($1.85 billion), were down by around 23 percent compared with €1.67 billion ($2.41 billion) a year earlier.

Revenues from fixed infrastructure sales are up 5 percent, though, to €1.52 billion ($2.2 billion) from €1.45 billion ($2.1 billion) a year ago, with AlcaLu noting "very strong" sales of optical equipment, particularly metro and long-haul WDM gear.

AlcaLu's share price hit €6.91 on the Paris exchange in early trading this morning as investors studied the restructuring plans, but by mid-morning had dropped to €6.67, up just 4 cents from yesterday's closing price. The vendor's share price when it began operations late last year was €10.21.

— Ray Le Maistre, International News Editor, Light Reading

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