Alcatel-Lucent to cut jobs as part of turnaround

Alcatel-Lucent SA, the world's largest maker of fixed-line networks, will cut another $1.3 billion of costs in each of the next two years, including 1,000 more managerial jobs, as Chief Executive Officer Ben Verwaayen tries to end losses.

Adjusted operating profit will be around break even next year, the Paris-based company said in a statement today. The telecommunications equipment market will slump 8 percent to 12 percent next year at constant exchange rates, Alcatel-Lucent said as it announced the CEO's plan to turn the company around.

The new measures bring job cuts to 17,500 since Alcatel SA bought Lucent Technologies Inc. in 2006. The company also will eliminate 5,000 contractors, it said today.

The company could not break out how those layoffs would be done, especially at its offices in DuPage County. "It has not been decided or broken down any further than a global plan," said company spokeswoman Denise Panyik-Dale. "It's too early to say how it will impact specific areas."

Verwaayen, hired in September, has overhauled management after Alcatel-Lucent lost 4.84 billion euros since the merger. The company has suffered from writedowns in the wireless-equipment business, restructuring costs and lower spending by clients including Sprint Nextel Corp.

"Results are expected to be really weak; the market will be difficult," said Eric Beaudet, an analyst at Natixis Securities in Paris who rates the stock "reduce." "In restructuring, there is not much concrete, so it's disappointing."

Before today, Alcatel-Lucent's market value had tumbled 19.2 billion euros to 4.3 billion euros since the combination, which was aimed at fighting off competitors including Ericsson AB and Huawei Technologies Co. The shares, which lost 63 percent this year before today, plunged as much as 11 percent to 1.65 euros, and traded at 1.68 euros as of 12:06 p.m. in Paris.

Return to Profit?

Alcatel-Lucent said it aims for a gross margin in the mid- 30s and an operating margin in the mid-single digits in 2010 by reducing costs by 1 billion euros in each of the next two years.

"We want to make this organization much more lean and mean, more agile," Verwaayen said on a conference call with reporters.

The company will post an adjusted operating profit in 2010, although it's too soon to say when it will report net income, said Paul Tufano, hired last month as chief financial officer. Alcatel-Lucent has posted seven straight quarters of losses.

"This is the third year of restructuring," said Nicolas von Stackelberg, an analyst at Sal. Oppenheim Jr. & Cie in Frankfurt with a "neutral" rating on the stock. "As an analyst you start to get used to this. My estimates have always been for Alcatel-Lucent to remain in the red next year."

Older Technologies

The company will focus its research and development on optical, Internet protocol, broadband and applications areas, while reducing spending on older technologies, such as code division multiple access, or CDMA, Verwaayen said.

Alcatel-Lucent said it will cut manufacturing, supply chain and procurement costs, and focus on improving the product mix. It will "materially reduce" costs by removing management layers and eliminating sales duplication in product groups and regions.

On Sept. 2, Alcatel-Lucent's board named Verwaayen, previously head of BT Group Plc, as CEO and appointed Philippe Camus, co-managing partner of Lagardere SCA, as chairman. They replaced former Lucent CEO Patricia Russo and Alcatel Chairman Serge Tchuruk, the architects of the 2006 merger.

Job Cuts

Verwaayen said last week that Alcatel-Lucent had no plans to leave the business of making wireless-communications equipment. The wireless-network market has shifted away from CDMA, a standard Alcatel-Lucent has dominated, toward the global system for mobile communications, or GSM.

On Oct. 30, the company reiterated sales this year will fall in the low to mid single-digit percentage range, excluding currency changes.

In October 2007, Russo raised the target for job cuts to 16,500, or about 20 percent of the total. By mid-2008, 9,000 of the positions had been slashed. Alcatel-Lucent said in February it would spend as much as 1.3 billion euros on the revamp in 2008 and 2009, with two-thirds of the expenses this year.

Verwaayen is trying to overhaul Alcatel-Lucent amid an economic slump and as its biggest customers, telephone companies, are cutting spending. He's forecasting a bigger slump in the market for phone networks than Nokia Siemens Networks, a joint venture of Nokia Oyj and Siemens AG, which predicts a drop of 5 percent or more next year.

Last month, Alcatel-Lucent hired Adolfo Hernandez from Sun Microsystems Inc. to run Europe, Africa and the Middle East, and in October Verwaayen named Robert Vrij, formerly of Openwave Systems Inc., to run the Americas.

Alcatel-Lucent is in talks to sell its 20.8 percent stake in Thales SA, Europe's largest defense-electronics manufacturer, to Dassault Aviation for 1.56 billion euros. The exclusive talks will last until Dec. 15, Alcatel-Lucent said last month. Verwaayen said today the talks are making progress.

Daily Herald Business Writer Anna Marie Kukec contributed to this report.