Alcatel-Lucent Posts Huge Losses, Cuts 5,000 Jobs

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Launches the “Performance Program” to fix its financial health

The launch of 3G coverage in the Channel Tunnel, piloted by Alcatel-Lucent, has been quickly forgotten after the vendor posted disappointing quarterly results and announced plans to cut 5,000 jobs worldwide.

CEO Ben Verwaayen confirmed restructuring measures dubbed the “Performance Program” that he hopes will save the company an additional €750 million (£588 million).

Other initiatives designed to help Alcatel-Lucent include exiting unprofitable markets and contracts, and more rigorous protection and licensing of its patent portfolio.

“Firm actions”

On the eve of the Olympics, it was Paris-based Alcatel that provided wireless coverage to the half of the Channel Tunnel connecting France to the UK. However, increased competition from Chinese vendors Huawei and ZTE, as well as the Swedish giant Ericsson has meant that despite attempts at innovation, the company is experiencing serious financial difficulties.

On Wednesday, Alcatel-Lucent posted second quarter revenues of €3.54 billion, down 7.1 percent year-over-year. The growth in its business IP group (10 percent) could not offset the sharp drop in its wireless (-18.7 percent) and optical (-16 percent) businesses. As a result, the company is facing an operating loss of €86 million and a net loss of €254 million.

Alcatel-Lucent shares have plummeted nearly 25 percent this year, to reach their lowest point ever. In the wake of the announcement, the share price fell 5.5 percent, closing at €0.86 on Wednesday. This morning, it sunk even further, to €0.80.

CEO Ben Verwaayen was quick to try to calm the situation by announcing the launch of a “Performance Programme”, which originally aimed to accelerate the transformation of the group. The updated Programme will lead to cost reduction of €1.25 billion by the end of next year, according to Alcatel-Lucent.

Among the measures that Verwaayen hopes will take Alcatel-Lucent out of a tailspin, the most important is the elimination of 5,000 jobs worldwide, or 6.4 percent of the company’s 76,000 strong workforce. The statement indicated that this downsizing will not affect the capacity for research and development.

The company also plans to exit or restructure its work in unprofitable markets, revise its contracts and start managing its patent portfolio as an “independent profit centre”. This could mean more aggressive enforcement of Alcatel’s intellectual property against infringement.

According to Reuters, last year the company posted its first annual profit since it was formed in the 2006 merger of Alcatel SA and Lucent Technologies, but Verwaayen was not able to deliver on a promised turnaround plan.

At €1.9 billion, the merger is now worth about one fifth of the $11.6 billion that Alcatel SA paid to acquire Lucent, reports Bloomberg.

“Despite having demonstrated our ability to deliver operational profitability, it is clear… that we must embark on a more aggressive transformation,” said Verwaayen in a statement.

“These times demand firm actions, but as this will involve shrinking our employee base and exiting certain non-profitable contracts we will use the Performance Programme to execute in a measured fashion,” he added.

Alcatel-Lucent has confirmed its prior target is a “strong positive net cash position at the end of 2012”.

Additional reporting by Yves Grandmontagne of Silicon.fr.

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