Huge Loss Forces Cuts at Alcatel-Lucent

Alcatel-Lucent, the telecom gear-making giant created by their recent merger, said Friday it would slash its payroll by 3,500 more workers than previously planned after posting a sizable loss for the fourth quarter.

The Paris-based company reported earnings for the first time since the US$11.4 billion merger was completed, reporting that it lost $803 million in the December quarter, compared to a $380 million profit the prior year when results are adjusted to account for the merger, which closed on Nov. 30.

Alcatel-Lucent’s revenue fell nearly 16 percent to $5.74 billion.

‘Clearly Disappointing’

The new cuts will bring the total number of layoffs to around 12,500, with the reduction slated to unfold over a three-year period. Lucent had begun trimming its own workforce even before the merger was final, saying last summer it would cut 6,000 workers after struggling to stay profitable.

“These are difficult but necessary decisions, and we will manage these reductions with care,” CEO Patricia Russo said. “We are committed to serving our customers’ needs, with a competitive cost structure and effective operating model. We will maintain the appropriate workforce level to do that.”

Russo, who headed Lucent before the merger and now runs the combined company, called the results “clearly disappointing.”

“The positive long-term benefits of the merger and the growth potential of Alcatel-Lucent remain as envisioned,” she said.

“Since we began operating as a combined company, we have made progress against our integration plans and we expect to increasingly recognize the benefits of our integration over the course of the year,” Russo added.

The telecom giant was the second major technology company in as many days to report major job cut plans. On Thursday, Eastman Kodak said it would slash 3,000 more employees in its restructuring plans, bringing its total cuts as high as 30,000.

Challenging Conditions

Another telecom firm, Motorola, announced in January it would cut 3,500 jobs, and gear-maker Nortel has also laid out plans for more reductions in its staffing levels.

The recent surge in job reduction announcements come after 2006 saw the fewest layoff announcements in more than six years.

According to Chicago-based outplacement firm Challenger, Gray & Christmas, 2006 was the first year since 2000 that saw fewer than 1 million announced layoffs — around 840,000 positions were eliminated.

That may have represented the calm before the storm, with consolidation and other trends likely leading to more cuts, Challenger, Gray & Christmas CEO John Challenger told the E-Commerce Times.

“Companies are far more adept at fine tuning their staffs to reflect changes in the economy,” he said. “The job market is far more fluid today than it was even five years ago. It is not uncommon for companies today to be creating jobs and eliminating them at the same time.”

Alcatel Cuts

The cuts at Alcatel-Lucent represent a 16 percent reduction in workforce. The company did not say where the job cuts would be focused, though in France the firm is already facing a possible worker strike next week.

The company advanced a few reasons for its Q4 loss, including uncertainty among customers of both Alcatel and Lucent during and after the merger process, as well as difficult market conditions, particularly in North America.

Inevitable Trend

The merger was held up in part because of concerns about foreign ownership of a company whose customers included major American telecom firms and some government agencies.

The disruption from the merger may drag down results in the first few months of this year as well, Russo said, adding that the company would begin seeing strong growth again later in the calendar year.

Mergers in the telecom equipment space were all but inevitable, as telecom carriers went through a frenzy of merger activity in recent years. The consolidations have left only a handful of major telcos standing in both the U.S. and Europe, telecom industry analyst Jeff Kagan told the E-Commerce Times.

“Mergers on the network side … naturally led to the need for the gear makers to merge,” he added.