Little more than a week after announcing that it wouldn't be able to hit its operating margin targets for the year, Alcatel-Lucent (NYSE: ALU) has announced a new cost-cutting program that will result in 5,000 of the company's 78,000 staff losing their jobs. (See AlcaLu Issues Full-Year Profit Warning.)
The job cuts will impact all regions, CEO Ben Verwaayen said during today's earnings conference call.
News of the cuts came as AlcaLu announced second-quarter revenues of €3.55 billion (US$4.3 billion), down 7.1 percent from a year ago but up 10.6 percent from a weak first quarter. (See Bad Start to 2012 for AlcaLu.)
Second-quarter gross margins of 31.7 percent were down compared with 34.9 percent a year ago, while the vendor's adjusted operating loss (before one-time costs) was €31 million ($37.7 million). It reported a second-quarter net loss of €254 million ($309 million) compared with net profit of €43 million ($52.3 million) a year earlier.
'The Performance Program'
The company's new cost-reduction plan, dubbed The Performance Program, is designed to reduce AlcaLu's annual operating costs by €750 million ($911 million) by the end of 2013. AlcaLu had previously outlined ways to cut costs by €500 million ($608 million) by that timeline, but those measures did not include a major headcount reduction (though the company has been cutting staff during the past year).
Now, though, market and economic pressures have taken their toll. "These times demand firm actions," stated CEO Ben Verwaayen in today's earnings press release.
In addition to cutting jobs, AlcaLu intends to exit or renegotiate unprofitable managed services deals and quit unprofitable geographic markets. No mention was made of winding down or selling off product lines.
As part of the program AlcaLu is also looking to capitalize on its intellectual property and is setting up its patent portfolio as an independent profit center.
The cost-cutting plan wasn't enough to appease investors, as AlcaLu's share price on the Paris exchange fell by 5.4 percent in early trading Thursday morning to €0.83, giving the company a market value of just €1.9 billion ($2.3 billion).
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to me it is more than obvious that management team does not have a plan other than to delay as much as possible their ousting. The lack of detail makes this obvious: other than a nice fat (yet not even close to what is really needed that is around 30k people) headcount figure and some fuzzy commentary about exiting contracts, countries and the like, there is no substance.
furthermore the contradictions are visible: they claim 5k reduction when at the same time they consider exiting massive deals and markets. this should be, on itself, much more than 5k....
So good luck to the "performance" program but i think is DOA. Company needs some new brains asap and some more daring steps in the right directions.
It is more than abvious that a few years after the announcement of the big mergers ALU and NSN that it simply doesn't work. NSN has announced to leave the wireline business a few weeks ago and will be focussing 100% on the mobile market. ALU is still not focussing and trying to do wireless,wireline and enterprise business. There are today just too many companies making the same stuff and all competing on price to each other. Such a business model will kill one or more of the vendors in the near future. The vendors should rethink their strategy and some should leave particular business domains, that is the only way forward. There is no single vendor that is making serious profits for their shareholders, even not Huawei as they just think about growth today and profitability is for later. ALU is now a junk share and could probably be delisted in the near future. It is time for a drastic change in the telecom vendor world. The CEO's that don't understand that mechanism should leave the company as investors will not support them forever without ROI.
In the last year, Alcatel-Lucent's market cap has fallen more than 60 percent while the S&P is up nearly 19 percent. I think the story of ALU is not nearly as bad as the charts suggest.
Not nearly as bad as the chart suggests? Please buy a calculator and sit down with Alcatel's balance sheeet. The company needs to generate about 120% of its current market capitalisation in cash in the next 3 years to merely repay its debt - never mind pay salaries and invest in the business going forwards. It has generated less than zero net cash in the last 3 years, a fact that could be covered up by asset sales but that process is now done. The fans of Alcatel have argued all the way down that the stock is cheap - that is because they are clearly incapable of financial analysis. Alcatel's current equity is all but worthless and this will be state owned within 2 years
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