Alcatel-Lucent Outlines its Turn-Around Plan - More Job Cuts

Alcatel-Lucent has published the details of its turn-around plan, which include yet more job cuts and a focusing on internet services. In order to achieve this strategy, Alcatel-Lucent will undergo a "major strategic transformation" and will take some significant steps to realign its operations.

The company will be focusing on three markets: service providers, enterprises, and selected verticals and on four key areas of investment: IP, Optical, mobile and fixed Broadband and Applications enablement.

"We will work closely with our service provider, enterprise customers and applications providers to make this strategic transformation happen. We want to stimulate a sustainable business model for the industry that will fuel innovation and the capital investment required to expand the overall web experience to more people and businesses. Alcatel-Lucent is committed to innovate, collaborate and partner to achieve this goal", said Ben Verwaayen, CEO of Alcatel-Lucent.

Alcatel-Lucent will be partnering, co-sourcing and participating in the consolidation of the industry to reduce spending for WiMAX, CPE, classic core, non-IMS based fixed NGN portfolio and some legacy applications.

Other actions will be taken to have a more agile R&D, such as further simplifying the Carrier Product Group from 6 to 4 divisions, completing platform rationalization program for W-CDMA and NGN as well as consolidating global R&D centers.

As a part of these initiatives, Alcatel-Lucent expects to reduce the number of managers by approximately 1,000 and the number of contractors by approximately 5,000. The company will also complete its existing restructuring initiatives as well as seek savings in real estate, support functions and discretionary spending.

Altogether, Alcatel-Lucent expects that, by the fourth quarter 2009 on a run rate basis, it should achieve total savings of €750 million at constant exchange rate, of which approximately one-third in the cost of goods sold and two-thirds in R&D and SG&A expenses.

Guidance and targets

For full year 2009, Alcatel-Lucent expects the market for telecommunications equipment and related deployment services to be down between 8% and 12% at constant exchange rate and expects to maintain a stable market share. As a result of the expected decline in volumes and given that the improvement in gross margin will only materialize towards the end of the year, the companyÃ's initial forecast is to achieve an adjusted operating profit around break-even in 2009.

In 2010, with the set of actions described above, Alcatel-Lucent is targeting to achieve a gross margin in the mid thirties range and an operating margin in the mid single-digit range.

Looking beyond, the goal of the company is to achieve a gross margin in the mid to high thirties range and an operating margin in the mid to high single-digit range in 2011.

"The new management team is committed to rapidly executing this new strategy and leveraging the new streamlined organization. We are focused on delivering results and restoring profitability. I am confident we have now the strategy and the strengths to succeed," said Ben Verwaayen, CEO of Alcatel-Lucent.

Directors

The company also announced the resignation of two directors, Jozef Cornu and Daniel Lebègue and appointment of four new directors:

Stuart Eizenstat, former Deputy Secretary, US Department of the Treasury; Louis Hughes, CEO of GBS Laboratories, who will chair the newly formed Technology committee of the board; Jean Monty, former Chairman and CEO of BCE, who will chair the Audit and Finance committee of the board; and Olivier Piou, CEO of Gemalto.

Posted to the site on 12th December 2008