Update: Poor results at Alcatel-Lucent prompt more layoffs

Alcatel-Lucent unveils a three-point plan for restoring profitability as its postmerger financial performance continues to disappoint

Alcatel-Lucent said it plans further layoffs after its postmerger financial performance continued to disappoint.

The company fleshed out its three-point plan for restoring profitability on Wednesday, including a renewed focus on products to help carriers transform their networks to an all-IP infrastructure, a move from products to value-added services, and a more streamlined organization with fewer staff in support functions to eliminate postmerger duplication. It will cut a further 4,000 jobs by 2009, in addition to the thousands it has already shed, and hopes the moves will save it a further €400 million (around $575 million) by that date, it said.

In another change, Alcatel will reduce its senior management team to seven members, from 11, and Chief Financial Officer Jean-Pascal Beaufret will leave, to be replaced by enterprise systems group head Hubert de Pesquidoux.

Alcatel-Lucent's board has expressed its disappointment with the decline in performance since the Dec. 1 merger of Alcatel and Lucent Technologies, but expressed its continued support for CEO Patricia Russo earlier this month. Russo has the board's support for her plan to restore the company to profitability, she said Wednesday.

"It's not a plan solely focused on cost. It's also focused on growth," she said in a conference call with analysts.

As part of the plan, the company will simplify its regional structure, dividing the world into just two regions, the Americas and the rest. It will also pull out of between 10 and 20 countries where its margins are too slim to make a profit, Russo said. In those countries it will pursue "an alternative strategy where we can continue to support customers but through different means," she said.

For the quarter ended Sept. 30, the company reported revenue of €4.35 billion, a fall of 11.4 percent compared to the €4.91 billion that the two companies made a year earlier. Alcatel-Lucent provided comparable figures for the companies' performance before their merger on Dec. 1.

Currency fluctuations hurt the company's performance: the decline in revenue would have been 7.8 percent at constant exchange rates.

Alcatel Lucent remains in the red, with a loss of €345 million this quarter, or €258 million excluding restructuring charges, compared to a comparable net profit of €532 million for the companies a year earlier.

Alcatel-Lucent is still hoping for a "solid ramp up in revenue" in the fourth quarter, but seems less optimistic; it now says revenue for the full year will remain flat, rather than "flat or slightly up" as it predicted last month. The company offered no guidance on earnings for the full year.

Revenue from the company's largest business segment, carrier networks, dropped 15.2 percent year on year to €3.14 billion, while operating profit for the segment fell from €389 million to €22 million. Alcatel-Lucent said the decline was exaggerated by the comparison with unusually strong sales of CDMA wireless networks in North America in the third quarter last year, as operators rushed to deploy a performance-enhancing software upgrade.

The company has converged two of its three CDMA platforms since the start of the year, and expects to merge the remaining two by the third quarter of next year, Russo said. Going forward, it will focus research and development spending on new revenue opportunities such as the transformation of wireless networks to all-IP systems.

As part of its restructuring, the company will eliminate a layer of management, merging the wireless, wireline, and convergence networks divisions of the carrier networks business segment.

Services revenue remained flat at €777 million, while operating profit in that sector fell to €40 million from €60 million a year earlier. The company sees services around the delivery of IPTV (Internet Protocol television) programming as a strong area.

One bright spot was the company's enterprise networks business, where revenue rose to €380 million from €362 million a year earlier, with operating profit rising to €29 million from €24 million a year earlier. The move by businesses from traditional switched telephone systems to VoIP on internal networks was a key driver, the company said.

This article was updated with new information on Oct. 31, 2007.

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