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Alcatel-Lucent to narrow focus as it slashes jobs

27 июля 2012

Telecommunications equipment maker Alcatel-Lucent plans to slash 5,000 jobs and reorganize its business more narrowly around profitable areas and clients after it swung to a net loss of EUR254 million and burned through half a billion euros in cash in the second quarter.

A sluggish global economy and cutthroat competition have weighed heavily on the Franco-American company. European and Chinese clients are slowing network upgrades. Razor-thin margins for the initial rollout of new high-speed wireless networks in the U.S. have also hurt, replacing more profitable older technologies that had been the company's cash cow.

Alcatel-Lucent's new cost-cutting plan accelerates a cultural shift in a company that built up a reputation by being a one-stop shop, but has been overtaken by larger and cheaper rivals. The company plans to abandon or renegotiate as many as a quarter of its service contracts with clients and exit or restructure operations some smaller markets where it is not profitable.

In total, Alcatel-Lucent aims to pare an additional EUR750 million, on top of an existing cost-cutting plan, for a total of EUR1.25 billion in savings by the end of 2013.

"We can't be everything for everybody anymore," Chief Executive Ben Verwaayen said in an interview, indicating that the company might further pare down its array of products as it reorganizes to absorb the job cuts.

"If you were an ice cream shop, you probably wouldn't have five types of vanilla," he said. "Maybe three types of vanilla is enough."

Alcatel shares slumped to new lows Thursday before recovering modestly, as investors digested the downbeat report and the company's restructuring plans. Last week, after warning it would no longer hit its goal of improving its operating margin from last year's 3.9% level, Alcatel shared tumbled to what until Thursday had been their lowest levels in more than two decades.

The company's current guidance is only that the second half of 2012 will show better margins than the first half. Mr. Verwaayen declined to say whether Alcatel would show a profit for the year.

"They are too small in everything they do. That's why they struggle to make money," said Pierre Ferragu, an analyst at Sanford C. Bernstein & Co. "The company as it stands is unsustainable."

Alcatel-Lucent, which was formed in 2006 by the combination of Paris-based Alcatel and former N.J.-based Lucent Technologies Inc., has seen its woes compounded by a broader telecom slowdown.

France Telecom SA on Thursday reported an 11% decline in first-half profit compared with a year earlier, amid a price war in the French mobile-phone market, although the company reiterated its full-year guidance and even announced an interim dividend. On Wednesday, Spain's Telefonica SA said it would cancel the payment of all remaining dividends and share buybacks for this year, and released its results--including a 14% decline in second-quarter profit--a day earlier than expected.

Lower profit from phone-service providers is trickling back to equipment makers. Earlier this week, Chinese competitor Huawei Technologies Co. reported a 22% decline in its first-half operating profit. Last week, Sweden's Ericsson posted a 64% drop in its second-quarter earnings, with all companies suffering from competition and slower investment from operators.

But Alcatel faces particular problems. The company posted a net loss of EUR0.11 per share, compared with a year-earlier profit of EUR43 million, or EUR0.02 per share. Adjusted operating profit, a closely-watched figure for the company, swung to a loss of EUR31 million, compared with EUR87 million a year earlier.

Of particular worry has been the company's cash burn. Alcatel said it had a free cash outflow of EUR511 million in the quarter, compared with a reduction of EUR355 a year earlier. Some analysts suggest the company could face liquidity issues in coming years.

Mr. Verwaayen said that although the cash flow was a "bad number," the company had adequate cash reserves. Instead, he said, his concern is less with this quarter than with overall strategy.

"We have to react much more decisively and much faster and much more globally than we have ever done before," Mr. Verwaayen said. "We need to make a change in order to become a sustainably profitable company."

Источник: Total Telecom

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