BL: Alcatel-Lucent Deepens Job Cuts, Posts Quarterly Loss (Update4)
By Rudy Ruitenberg
Oct. 31 (Bloomberg) -- Alcatel-Lucent SA, the world's biggest maker of telecommunications equipment, will cut a further 4,000 jobs and Chief Financial Officer Jean-Pascal Beaufret will resign after the company reported a third straight quarterly loss and reduced its sales forecast.
The elimination of another 5 percent of the workforce will help save 400 million euros ($577 million) by the end of 2009, Paris-based Alcatel-Lucent said in a statement today. The company said in February it would cut 12,500 workers.
Chief Executive Patricia Russo said North American sales of fixed-line network equipment are slowing because of the collapse of the housing market, at a time when the industry already faces a drop in wireless orders. Alcatel-Lucent shares have lost 38 percent in 2007, the biggest drop in the CAC 40 Index, as Alcatel SA's purchase of Lucent Technologies Inc. failed to lift sales.
``We'll see if this suffices,'' said Frederic Hamm, who helps manage the equivalent of $217 million at Agilis Gestion in Paris and doesn't own Alcatel-Lucent shares. ``It will take several months before we see the effect, but it will have to be fast. The margins won't stop falling.''
The third-quarter adjusted net loss was 258 million euros, compared with profit of 532 million euros a year earlier. Sales fell 11 percent to 4.35 billion, hurt by lower investments in wireless networks in the U.S.
Stock Slump
Analysts predicted a loss of 129.4 million euros, the average of nine estimates compiled by Bloomberg. Estimates ranged from a loss of 348 million euros to profit of 9 million euros.
Alcatel-Lucent shares rose 5 cents, or 0.8 percent, to 6.68 euros as of 11:43 a.m. in Paris. Before today, the stock had dropped 34 percent since Alcatel bought Murray Hill, New Jersey- based Lucent in November for $11.6 billion. The decline erased $11.7 billion in market value.
Beaufret said on a conference call with reporters he's leaving ``in the coming weeks,'' and will be replaced by Hubert de Pesquidoux, who heads the company's enterprise business. Beaufret is leaving ``to pursue other opportunities,'' the company said.
``The CFO dismissal or resignation is a mild disappointment as investors would probably prefer Russo to pay the price of the warnings over Beaufret, who did a decent job under very difficult circumstances,'' said Jesper Kruger, who helps manage about $64 billion at ATP in Copenhagen.
Lower Forecast
Sales this year will be about unchanged from 2006, at constant exchange rates, the company said. Alcatel-Lucent previously had said sales would be ``flat or slightly up.''
``We're seeing a bit of a slowdown in spending now in the wireline part of the market, particularly in North America,'' Russo said on the conference call. ``Some of that is related to the housing issue, and new lines and new homes.''
Competitors also are suffering. Shares of Ericsson AB, the world's largest maker of wireless networks, plunged 24 percent on Oct. 16 after the Stockholm-based company said profit and sales trailed its forecasts. Lower demand for network upgrades in North America and Europe hurt profit margins, the company said.
Alcatel-Lucent's third-quarter sales in the wireline unit, which supplies optical networks and broadband-Internet access equipment, rose 5 percent to 1.52 billion euros.
``The one part that was doing well is now also suffering,'' Hamm said. ``All of Alcatel's businesses are lackluster. That's also the case for all the competitors. It's not unique to Alcatel-Lucent.''
Wireless Plunge
In the wireless division, which supplies equipment such as base stations for mobile networks, sales slumped 24 percent to 1.28 billion euros.
Alcatel-Lucent said it will create two regional groups -- one to run the Americas and the other for Europe, the Middle East, Africa and Asia -- down from three currently. Christian Reinaudo, head of Alcatel-Lucent's Europe and North region, will leave the company.
The company also is creating a seven-member management committee to oversee strategy. The members include Pesquidoux; Cindy Christy, head of the Americas; Etienne Fouques, who oversees research, strategy and corporate marketing; John Meyer, head of services; Claire Pedini, head of human resources and communications; Michel Rahier, head of the carrier business group; and Frederic Rose, head of Europe, the Middle East, Africa and Asia.
New Blood
``The company is trying to add some new blood,'' said Clemence Bounaix, an analyst at Richelieu Finance in Paris, which oversees $5 billion. ``The cost cuts should add color to the operating margin, but it's too early to buy the shares.''
The company has decided for now not to exit any major businesses, Russo said.
Alcatel-Lucent said Sept. 13 that sales growth may stall in 2007, third-quarter profit excluding items would be ``around break-even'' and margins will shrink. The company cited declining orders for mobile-phone networks and falling prices.
Russo repeated a forecast for gross operating profit as a percentage of sales ``in the high 30s'' and an operating margin of ``10 percent plus'' from 2010 onwards.
``We take the statement with a pinch of salt,'' said Per Lindberg, an analyst at Dresdner Kleinwort, in a note to investors. He forecasts operating profit to be 7 percent to 8 percent of sales ``in the long run.'' Lindberg, who recommends buying Alcatel-Lucent shares, said in a report last month that the company should cut 30,000 jobs.
The company's unions said they oppose new job cuts. One union, Confederation Generale du Travail, blamed the merger with Lucent for the company's woes.
``To say that the American dream is a fiasco would be a mild euphemism,'' the union said in an e-mailed statement. ``The merger with Lucent, without being the only cause, is revealing itself as a key factor in the company's descent into hell.''
To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net .
Last Updated: October 31, 2007 06:46 EDT
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