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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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keelhaul42 12/5/2012 | 1:13:49 AM
re: Lucent Offshoring Wave Hits Hard I've been assured over and over again that jobs offshored are a tiny fraction of the total US employment. There is no way that large numbers of jobs - highly skilled ones at that - could be sent overseas.

The hard facts:
- jobs of all kinds are leaving the country in droves. Anything that isn't nailed down is going. Anything that can be pried loose isn't nailed down.

- twenty years of education plus twenty years of experience will not save you. Think about getting a 7-11 franchise.

- sending your kids to a top public University (at $20K per year)? Forget it. That education has no way of ever paying for itself except for possibly medicine or dentistry and even some of THAT is leaving. Law might still be ok -- assuming we want more lawyers still.

- Had enough? TELL YOUR REPRESENTATIVES: India and China have an artificial cost advantage. This has to end. Let them compete fairly or not at all.

my .02 (US)

-kh

laserbrain2 12/5/2012 | 1:13:49 AM
re: Lucent Offshoring Wave Hits Hard As a former LUser, I have to say this is refreshing news. I was acquired-in during the bubble and found a moribund institution. I knew it was time to go when I saw the old dude sitting in the Lucent van reading the paper. "My god, I'm working for the Phone Company."

So right on, Pat. Cut all the crap. Be ever vigilant. Shrink the lousy businesses as fast as you can. Move the projects to smaller, cheaper teams. Lose the unions. You may yet make it.

sjd6 12/5/2012 | 1:13:48 AM
re: Lucent Offshoring Wave Hits Hard Resell more and more Juniper, and ship all your jobs to India. More brilliant planning at LU.
Donald_Rumsfeld 12/5/2012 | 1:13:48 AM
re: Lucent Offshoring Wave Hits Hard We know what we know. We also know what we don't know. What concerns me most at Lucent is the unknown unknowns that we know we don't know.
RouterOttawa 12/5/2012 | 1:13:47 AM
re: Lucent Offshoring Wave Hits Hard His insiteful commentary would certainly be appropriate right about now....

(or not....)
lastmile 12/5/2012 | 1:13:46 AM
re: Lucent Offshoring Wave Hits Hard Ask LR.
Bobby Max helped us during the bad times with fun and games. The bad times continue and it will be a pleasure to hear from Bobby Max again.
Bobby Max was never an individual. It was an idea conceived by LR.
Only LR can help.
TJGodel 12/5/2012 | 1:13:44 AM
re: Lucent Offshoring Wave Hits Hard The division in Landover Maryland which employs about 200 people are losing their jobs. The jobs are going to India. To add insult to injury they are currently training the Indian who will take over future development.
Ringed? 12/5/2012 | 1:13:43 AM
re: Lucent Offshoring Wave Hits Hard Hilarious. Bobby was nearly the only source of telecom entertainment from I'd say late 2000 until he disapeared sometime in 2003. His posts in 2002 were particularly refreshing?

You don't think... No...! He couldn't be....

Larry the LR Attack Monkey? :) Boobie Max. Say it ain't so.

PS.
(I loved the person that all ways attack him. He always called him Boobie.

Ringed?

WiserNow 12/5/2012 | 1:13:38 AM
re: Lucent Offshoring Wave Hits Hard Well, the PSAX team from Yurie survived longer than the venerable MAX/TNT/APX team from Ascend. LU slashed 250 jobs there a couple years ago. Rumor has it that the handful of survivors in Alameda, CA are profitable but hopeless.

I didn't think there was a CBX team left in Westford, MA to offshore. LU chased most of them off years ago.

And why is this article limited to INS? Wireless has been shipping their UMTS jobs to China for over a year now.

Lucent is no longer a creative shop. Why don't they give Bell Labs R&D folks their walking papers? If they aren't developing products, why do they need Bell Labs overhead? Most of the really good folks have walked on their own already, but the remainder are very expensive and produce nothing of value -- unless one can sell powerpoint presentations of the obvious.
dadofamunky 12/5/2012 | 1:13:30 AM
re: Lucent Offshoring Wave Hits Hard There's two ways to look at this. First, if Pat Russo didn't do something very serious LU was roadkill. They were in a death spiral. So huge major restructuring was definitely necessary. And there is no doubt that there was a lot of deadwood and underbrush to clear out.

OTOH, being sneaky about offshoring jobs and forcing the original jobholders to train their replacements stinks. That is truly un-American. Just come out and say it. Be freakin' honest. For an example, see Carol Bartz of Autodesk.

Lucent still has some good technical talent. Michael Nielsen is one of the best engineering heads I've ever seen, and he has pushed through their best products lately, such as the Stinger.

Hopefully, someday LU can produce more profits by growing their business instead of mining their head count for ongoing cost cutting.
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