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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desiEngineer 12/5/2012 | 3:14:35 PM
re: Alcatel-Lucent Job Cull Hits 12,500 russ4br,

The cuts from "less competitive" products was a message board comment, not an ALU press-bite.

Saying that you are focussing on "becoming more competitive" is what they teach you in MBA 101. Making those cuts in the non-competitive sectors is one of the steps to get there.

ALU has been going neck-and-neck with JNPR in the IP/Edge, has a #2 position in ATM, a #1 or #2 position in optical, #1 in DSLAMs, etc. There is focus in those areas because they haven't been holding that position for just one year.

Culling the less competitive sectors is just part of the process.

flyingsausage 12/5/2012 | 3:14:36 PM
re: Alcatel-Lucent Job Cull Hits 12,500 I think it's a very good summary, expect cuts everywhere !

I believe ALU actually tries to focus on things and become more competitive... however, the numbers are not yet there, maybe fault of the market ? bad management ? legacy ? too big ? bad employees ? let's ask the oracle :)
russ4br 12/5/2012 | 3:14:36 PM
re: Alcatel-Lucent Job Cull Hits 12,500 The product divisions are spread among several countries and regions, with maybe 20 R&D centers wolrdwide. Obviously, the less competitive products will suffer first.

If they are cutting the "less competitive", then expect cuts everywhere.

Why don't we hear ALU focusing on turning things around and becoming "more competitive" instead?

whyiswhy 12/5/2012 | 3:14:41 PM
re: Alcatel-Lucent Job Cull Hits 12,500 Craig:

SV and VC roots go back to BBS and the start of Fairchild, so the story is a lot older than a decade.

Risk-culture has a lot to do with it: there is admiration for someone willing to drive an old car, live in a studio apartment, and working to midnight if "doing" a start-up. Also no shame in being at your fifth start-up and ten or more years into your career and still waiting for a payoff... just jealousy of those who get lucky do it on their first try.

That's hard to enculture, but once there, hard to beat.

flyingsausage 12/5/2012 | 3:14:41 PM
re: Alcatel-Lucent Job Cull Hits 12,500 Dear Flam,

Not having worked directly with Mrs Russo, I would not comment on her skills or qualifications. And obviosuly I don't rely on the press or rumours to learn it :)

However, for sure she got the very challenging job of restructuring Alcatel-Lucent, with obvious numerous lay-offs to be done (was the ultimate goal of the merger after all).

I'm not sure these days that the CEO of a huge company like ALU has full decision power and would manage it like an emperor, or like the "Spectre" organization in James Bond 007. Obviously she's not taking decisions alone, and relies on several teams in doing so.

You can be sure that former Alcatel executives will also do the part of their lay-offs jobs, and other regions (Europe, Asia, ...) will suffer as well.

ALU has a matrix structure, with on one hand the product divisions, and on the other hand the regional divisions. The product divisions are spread among several countries and regions, with maybe 20 R&D centers wolrdwide. Obviously, the less competitive products will suffer first. Knowing where a product is developped will allow to guess where lay-offs will occure. Looking at the recent rumours on the Evolium UMTS portfolio and knowing where it's developped, one can guess that even France will face massive lay-offs...
Pete Baldwin 12/5/2012 | 3:14:43 PM
re: Alcatel-Lucent Job Cull Hits 12,500 From yesterday's NY Times, an essay lauding the way Silicon Valley nurtures great ideas:

tsat 12/5/2012 | 3:14:44 PM
re: Alcatel-Lucent Job Cull Hits 12,500 Someone much smarter than me once said the key to California's innovation is simple: People here are not afraid of failure.

tsat 12/5/2012 | 3:14:44 PM
re: Alcatel-Lucent Job Cull Hits 12,500 > HP? Boeing?

yeah, you might view these companies as old and bloated.

But they are still incredibly successful by any corperate standard.

If that was the 2 worst companies you could come up with, then the West Coast must still be pretty good.

Now, don't go all Tupac on me for saying that.

flam 12/5/2012 | 3:14:45 PM
re: Alcatel-Lucent Job Cull Hits 12,500 flyingsausage,

Of course they have offices everywhere. But the culture which permeates the office comes from somewhere and it's top down.

The behavior which is rewarded is the behavior which will take place.

Russo is going to execute layoffs where she's most comfortable and familiar. In the US. Why else do you think Alcatel stuck her in that position? She has no other qualification.

jepovic 12/5/2012 | 3:14:45 PM
re: Alcatel-Lucent Job Cull Hits 12,500 Europe is not one country. The labor laws vary heavily. However, France is a country with labor laws which do come close to the american prejudice about Europe. But of course it's possible to fire people in France, it just takes a bit longer.

Looking at the what the two companies brought into the merger, I'd be surprised if LU wouldn't suffer heavier cuts. AL was a reasonably successful company, after all.

As far as the east coast-west coast debate (Dr Dre, anyone?), I just wanna remind you that Ericsson and Nokia have the coldest-climate HQs of all the major suppliers. They're doing just fine!
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