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Alcatel-Lucent to Reduce 10,000 Jobs as Losses Mount

Alcatel

Alcatel-Lucent SA 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. The company will close sites in Toulouse and Rennes, France.

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 rose 1.3 percent to 2.93 euros at 11:05 a.m. in Paris. The stock has almost tripled this year, though it is still down about 97 percent since its peak in 2000.

Asian Competition

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 Paris-based 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.

Nokia Combination

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 June. Cisco Systems Inc. (CSCO), 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 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.

Site Closures

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 plans and appeal to the government to stop the firings.

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 addition to seeking asset sales and cost reductions, Alcatel-Lucent is in talks with more potential research partners which could become its shareholders. Qualcomm Inc. already agreed to buy a minority stake.

(Source: Bloomberg)