PARIS -(Dow Jones)- Franco-American telecoms-equipment maker Alcatel-Lucent, Wednesday said it will cut 4,000 extra jobs and target a further EUR400 million in cost savings as part of an accelerated restructuring plan.
The company also announced that its chief financial officer, Jean-Pascal Beaufret, would leave the company in the coming weeks to be replaced by Hubert de Pesquidoux, currently head of the enterprise division. Beaufret's departure is part of the streamlining of the company's senior management, with a reduced committee of seven executives, not including Chief Executive Patricia Russo, replacing the previous 21-person senior leadership team.
"Pat has tightened her management team and chosen the people with which she wants to work," Beaufret told a conference call. Christian Reinaudo, head of the Europe and North region, has also chosen to leave the company, Alcatel-Lucent said in a statement.
The new measures, acutely anticipated by investors since the company's third profit warning in less than a year, are in addition to the group's previously disclosed plans to cut 12,500 jobs worldwide by 2009 and generate EUR1.7 billion in cost savings over three years.
Reactions were mixed to the new plan. "There's a feeling that the decks have been cleared so it could be a case of onwards and upwards for the company," a trader said.
However, Richard Windsor, an analyst at Nomura, said "people were expecting more urgent action."
The company's stock rose as much as 4.2% in morning trading in Paris before sliding back as investors digested the different aspects of the announcement. At 1054 GMT, Alcatel-Lucent shares were trading up EUR0.02, or 0.3%, to EUR6.65, in an overall higher market.
Before Wednesday, Alcatel-Lucent's share price had nose-dived over 39% this year after the recently merged company posted three profit warnings, shattering investors' confidence.
The new job cuts will take place across all of the company's operations, including France and the United States, Russo told a conference call, but declined to give further details.
The new restructuring measures will cost around EUR500 million, said outgoing CFO Beaufret.
Alcatel-Lucent is the result of the $13-billion marriage of Alcatel SA of Paris and Lucent Technologies Inc. of Murray Hill, New Jersey, in 2006; a merger intended to drive down costs and cushion margins in a tough industry.
"With this plan, the company is targeting gross margins in the high 30's and operating margins of 10% or better in the post integration phase beginning 2010," Russo said. She added that the company's board is "fully supportive" of the plan.
Reports in the French press had speculated that Russo and Chairman Serge Tchuruk were under pressure as the merger struggled to produce the desired results.
The departure of Beaufret "is a blow upon a bruise" and the "delivery of savings could suffer" as a result, Nomura's Windsor said. He added that he considered Beaufret to be "one of the best CFO's in the industry."
The announcement of Beaufret's coming departure follows that of his counterpart at Telefon AB LM Ericsson (ERIC), Karl-Henrik Sundstroem, who left in the wake of Ericsson's recent shock profit warning.
The disclosure of further cuts at Alcatel-Lucent came as the group reported a third-quarter net loss of EUR345 million, compared with a proforma EUR532 million net profit a year earlier. A Dow Jones Newswires poll of nine analysts had forecast an average net loss of EUR209 million.
An exact comparison with last year's third-quarter results can't be made as the two companies had not yet merged. The net result was dragged down by merger-related charges and lower revenues.
The company reported a third-quarter adjusted operating profit of EUR70 million against a EUR430 million profit a year earlier. Alcatel-Lucent had already warned on Sept. 13 that third-quarter operating income would be "around break-even" and analysts had forecast a profit of EUR10.1 million.
"When the dust settles, people will see that underlying profitability looks like it has improved," Nomura's Windsor said. He has a neutral rating on Alcatel-Lucent stock.
Revenues in the third quarter dipped 11.4% to EUR4.35 billion from EUR4.91 billion a year earlier, below the EUR4.39 billion forecast by analysts. The number was up 2.3% sequentially, in line with the company's guidance of slight growth.
Revenues were hurt by a lower performance in its wireless business, notably in the U.S., with a decline in GSM revenue, and by strong competition in the convergence segment, the company said.
The company changed its full-year guidance for revenue growth, saying it now sees flat revenue for 2007. Initially, Alcatel-Lucent was targeting full-year revenue flat to slightly up at constant currency rates.
Alcatel-Lucent said it expects a rise in revenue in the fourth quarter from the third quarter. The company "still needs a good fourth quarter to restore investors' confidence," Kepler Equities analyst Sebastien Sztabowicz said in a note to investors. Sztabowicz has a buy rating on Alcatel-Lucent stock.
Russo said that since its Sept. 13 profit warning, the company had noticed "a little bit of a slowdown in spending that we're talking about and our competitors talked about." In particular, she noted a further "slowdown in spending in the wireline market," especially in North America. Analysts see wireline as an area of strength for Alcatel-Lucent compared with its troubled wireless operations.
There is broader concern about a decline in spending in the global telecommuncations equipment market after Alcatel-Lucent's arch rival Ericsson slashed its own forecasts for third-quarter revenue and profits on Oct. 16, blaming a shortfall in higher-margin activities, such as mobile-network upgrades and expansions.
The industry's other major player, Nokia Siemens Networks, a combination of the network-building operations of Nokia and Siemens, has struggled with its own merger-related problems, but recently showed signs of clawing its way toward profitability while ramping up its own cost-saving targets.
By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com
(Geraldine Amiel contributed to this article.)
(END) Dow Jones Newswires
Posted to the site on 31st October 2007
Posted to: www.cellular-news.com/story/27077.php