Alcatel-Lucent SA (ALU) will eliminate 10,000 jobs as Chief Executive Officer Michel Combes accelerates a 1 billion-euro ($1.4 billion) cost-cut plan to revive the unprofitable French network-equipment maker.
The cuts, due by 2015, represent about 14 percent of the workforce worldwide, based on the 72,000 employees the Paris-based company had as of December. About 4,100 jobs will be reduced in Europe, Middle East and Africa, 3,800 in Asia and 2,100 in the Americas, Alcatel-Lucent said today. Sites in the French cities of Toulouse and Rennes will be shuttered.
Alcatel-Lucent is speeding up a turnaround bid after thousands of earlier job cuts, restructuring and asset sales failed to stem losses. Pressure on equipment prices and slower investment from European carriers, along with competition from China’s Huawei Technologies Co., are forcing Alcatel-Lucent and rivals such as Nokia Oyj (NOK1V)’s network-gear unit to reduce staff.
“This is something Alcatel needed to do,” said Eric Beaudet, an analyst at Natixis Securities in Paris, who recommends buying Alcatel-Lucent shares. “The magnitude of the plan is big and shows the management’s resolve in rapidly executing its turnaround.”
A slimmer organization, along with plans to sell 1 billion euros of assets by 2015, could make Alcatel-Lucent a more attractive target for an acquirer. Nokia, set to become a manufacturer focusing on wireless networks after the sale of its handset business, is weighing a linkup with Alcatel-Lucent, people with knowledge of the matter said last month.
Alcatel-Lucent fell 4.1 percent to 2.77 euros in Paris. The stock has more than doubled this year, though it is still down 97 percent since its peak in 2000.
Last November, Bloomberg News reported Alcatel-Lucent needed to cut 10,000 jobs to catch up with more efficient rivals and stop its cash pile from dwindling further.
Intensifying competition from Asian rivals Huawei and ZTE Corp. has weighed on Alcatel-Lucent, which was formed in the 2006 merger of France’s Alcatel SA and American company Lucent Technologies.
Former chiefs Pat Russo and Serge Tchuruk, who oversaw the merger, and Combes’s predecessor Ben Verwaayen left behind an unprofitable company with a high cost base. Plummeting sales of phone equipment in Europe have added to Combes’s challenges, and the company’s losses since its creation now exceed $10 billion.
By cutting jobs, Alcatel-Lucent is following in the footsteps of Nokia’s network unit, recently renamed Nokia Solutions and Networks, which in late 2011 started a savings program to eliminate 17,000 positions, or about 23 percent of its total. The Finnish company has since cut more jobs, in excess of 20,000 during the past two years, and had 50,500 employees at the end of June. Cisco Systems Inc. (CSCO:US), the world’s biggest maker of networking equipment, said in August it’s cutting about 5 percent of its workforce.
Based on 2012 reported revenue, Alcatel-Lucent had sales per employee of $257,000, according to data compiled by Bloomberg. NSN had $313,500 and Ericsson AB $305,000. (ERICB)
Nokia is considering options including a combination with Alcatel-Lucent’s wireless-gear unit, said one of the people last month. Nokia and Alcatel-Lucent together would be a stronger challenger to Ericsson, the biggest maker of mobile-phone networks, and Huawei. Alcatel-Lucent has contracts with Verizon Wireless and AT&T Inc. in the U.S., a market where Nokia trails competition. No talks are under way, said the people.
About a quarter of Alcatel-Lucent’s employees are in the U.S., where the company runs Nobel-Prize winning research facility Bell Labs. A third of its workforce is in Europe and a third in the Asia-Pacific region, according to its website.
In France, where companies have faced a tough stance on firings from President Francois Hollande’s Socialist government, Alcatel-Lucent plans to cut 900 out of about 9,500 positions.
Union CDFT, whose representatives are among those meeting with Combes today to hear his detailed plan, said in a release it will protest the CEO’s cuts and appeal to the government to stop the firings.
Alcatel-Lucent is “burning through cash” and “the French government considers that its mere existence is in danger,” Industry Minister Arnaud Montebourg said during parliamentary debate today.
Restructuring at Alcatel-Lucent is necessary and the government will support the company through its turnaround efforts, France’s Foreign Trade Minister Nicole Bricq said today in an interview with Radio Classique.
In Italy, the company plans to cut 586 out of about 2,000 jobs, according to the Cgil union.
In addition to seeking asset sales and cost reductions, Alcatel-Lucent is in talks with potential research partners about becoming shareholders. Qualcomm Inc. already agreed to buy a minority stake.
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