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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sigint 12/5/2012 | 1:13:23 AM
re: Lucent Offshoring Wave Hits Hard dadofamunky:
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.

Not only is it unamerican, it's inhuman. I've heard this over and over again.

Nobody benefits, except perhaps LU stock-holders. If you read the article, 15 employees in India replace 150 American workers. They'll probably work themselves to death for the scraps that LU might throw in their direction.

I feel really sorry for all engineers. Is there any company at all left that respects it engineering talent?
keelhaul42 12/5/2012 | 1:13:22 AM
re: Lucent Offshoring Wave Hits Hard sigint wrote:
I feel really sorry for all engineers. Is there any company at all left that respects it engineering talent?


So far as I know, there never was a company that respected its engineering talent. We were (and are) simply overhead.
BTW: are things really that bad in India? (... 15 engineers working themselves to death for the scraps LU might throw their way ...)

If yes, don't look for respect anytime soon!

jim_smith 12/5/2012 | 1:13:19 AM
re: Lucent Offshoring Wave Hits Hard dadofamunky: being sneaky about offshoring jobs and forcing the original jobholders to train their replacements stinks

Well if everyone wasn't so darned worked up about this offshoring thing, companies might just come clean and not be sneaky anymore.

But the way things are right now, either the CEO has to be sneaky or he can forget about a smooth transition to offshoring, which means he won't get his multimillion bonus.

Hell, I would be double sneaky if millions of dollars were at stake.

sigint: If you read the article, 15 employees in India replace 150 American workers.

Wow! I didn't know offshoring was that good!

So, not only did Lucent reduce per engineer costs by 3x or whatever, it also reduced the number of engineers by 10x?

I have to look into this offshoring thing...
kamalpr 12/5/2012 | 1:13:12 AM
re: Lucent Offshoring Wave Hits Hard BTW: are things really that bad in India? (... 15 engineers working themselves to death for the scraps LU might throw their way ...)

If yes, don't look for respect anytime soon!
IT sector is HOT and not bad in India. Many americans have also taken up jobs here. 15 engineers possibly cannot do the work of 150 -as the report claims. Having worked both onsite and offshore, I would say it takes more and not less manpower because of the communication gap i.e. instead of talking to a person face-to-face and/or reading his body language -you need to send email/talk over ISD and it involves quite a few iterations. They may have moved a minimal subset to India, and may ramp up in future if things go well.

BTW -people work for a living, not for respect from people elsewhere.

flam 12/5/2012 | 1:13:10 AM
re: Lucent Offshoring Wave Hits Hard BTW: are things really that bad in India? (... 15 engineers working themselves to death for the scraps LU might throw their way ...)

Not really how this works. Face, only a
few of the longtimers actually worked for
a living. The rest schmoozed their way through
meetings - "oooh, I'm so busy!" as one retiree
put it.

The initial team therefore doesn't need to
be 150 to take over the "work" of 150. All you
need is 15 guys to learn the core, then you
hire up as needed. In fact, don't be surprised
that they will soon hire up 450 to replace the
150 - how else will the Bangalor head become
Lu E-Level?

startup_shutup 12/5/2012 | 1:13:08 AM
re: Lucent Offshoring Wave Hits Hard H1B should be totally banned -- I have nothing to
say against offshoring. It's ironical that some
people are demanding more H1Bs....
tohaveandhavenot37 12/5/2012 | 1:13:08 AM
re: Lucent Offshoring Wave Hits Hard Link: http://www.dailyherald.com/sea...

Lucent layoffs continue
By Anna Marie Kukec Daily Herald Business Writer
Posted 10/2/2004

Lucent Technologies said Friday it will continue to lay off workers while, at the same time, hiring others to help it remain competitive and to increase business overseas.

The New Jersey-based telecommunications equipment maker has laid off about 200 workers worldwide, including 80 last week at its Naperville and Lisle offices.

To remain competitive, Lucent must find ways to improve its business, cut costs, and serve customers worldwide with resources that are closer to them, said Lucent spokesman John Skalko.

"There are talented people throughout the world who can contribute to serving our customers and we want to leverage that talent as best we can," said Skalko. "Outsourcing and off-shoring are now ways of life for a lot of U.S. institutions."

Lucent has turned a profit and it is unlikely to have layoffs of the same magnitude as in recent years, said Steve D. Levy, managing director of Wireline Equipment Equity Research for Lehman Brothers in New York.

"Profitable companies sometimes need to be more profitable," Levy said. "The question is where are they hiring?"

Levy said Lucent likely did some cuts at its switching operations in Naperville and Lisle because it has been unprofitable.

Skalko said hiring has been in professional services, certain research and development areas and in different countries.

When Lucent began restructuring in January 2001, it had about 106,000 employees. It had about 32,300 workers as of June 30. The next quarterly work force report is expected when Lucent releases its fourth quarter and fiscal year earnings Oct. 20. Lucent's fiscal year ended Thursday.

"We continue to monitor market conditions, look for ways to improve our productivity, and review business opportunities to match our headcount with the market realities," Skalko said.
tohaveandhavenot37 12/5/2012 | 1:13:07 AM
re: Lucent Offshoring Wave Hits Hard US vs. non-US employees according to lucent5-5 MB.

Date: Fri Aug 20, 2004 12:53 pm

Another current view on Human Capital Across Borders...

NJ 7334
Illinois 5941
China 3431
India: 1678
Britain 1063
Poland 757

China + India are about to overtake Illinois within 2 years (unless corporate tax rates change drastically).

The numbers include various non-Lucent employees such as security, cafeteria, IBM, ...


Date: Thu Aug 19, 2004 3:24 pm

From a friend:
August 2004, by City:

Lisle 2744
Naperville 2816
Columbus 1492 <- I had to double check that number ;-)
Whippany 2666
Holmdel 1653
whyiswhy 12/5/2012 | 1:13:07 AM
re: Lucent Offshoring Wave Hits Hard Recent releases from China are just more BS stalling. Look, their strategy is to keep the exchange rates where they are and take them higher, not lower.

Read the Economist: CHina is going to build 200 nuclear reactors (Helium cooled) in the next ten years. Objective: reduce oil imports to negligible levels. IOW, it won't have to import much, so why change the exchange rate to make oil or any other import cheaper.

In the mean time, it will be ALL TALK about floating the exchange rate.

What it will take is the seven to force the float...but that will take forever. Because for now CEO's in the US are getting richer, and they buy the votes.

In the mean time, more and more of the US economy will go over there. And that's the macro of what happens when the exchange rate is so far out of whack with respect to the internal purchasing power for so long.

And when we have nearly sold our ability to survive, and the Chinese commies come over here with ALL our money and take over...who will be able to say I toild you so?

Certainly noone associated with the present administration...from either side of the aisle.

Chinagate is massive.

Teach your kids how to work like water buffalo, that's their future.

fair_juror 12/5/2012 | 1:13:05 AM
re: Lucent Offshoring Wave Hits Hard It is "ironical" that you were yourself a H1B not so long ago (very obvious from the terribly broken English in all your numerous past posts).

Suppose Canada emerged as the next Silicon Valley. You are the kind of person that would immigrate there and soon say that Americans should be banned from entering.

US Immigration needs to have a CHARACTER test before they issue a visa.
startup_shutup said:
H1B should be totally banned -- I have nothing to
say against offshoring. It's ironical that some
people are demanding more H1Bs....
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