Alcatel-Lucent to Cut 5,000 Jobs After Q2 Loss

The job cuts are part of a larger transformation project that will include exiting some businesses and managing patents better, according to company officials.

Networking equipment maker Alcatel-Lucent will slash another 5,000 jobs as part of a larger cost-cutting program, as the company looks to stabilize its financial numbers, which have been under pressure since Alcatel of France merged with U.S.-based Lucent in 2006.

Alcatel-Lucent executives announced the job reductions and their plan to cut $1.5 billion in costs by the end of 2013 during a July 26 conference call with analysts and journalists to discuss the company€™s second-quarter financial numbers.

CEO Ben Verwaayen and other executives cited weakening demand for its products and an increasingly competitive market that includes such rivals as China-based Huawei Technologies and Ericsson as the key reasons for Alcatel-Lucent€™s continued struggles. The officials said the company lost about $308 million during the quarter, a year after turning a small profit in the second quarter of 2011. Revenue for the quarter fell 7.1 percent from the same period last year.

Company officials hope the cost-cutting program will help Alcatel-Lucent stem its losses, slow its spending and stabilize its stock price. The company has undergone several similar programs in the past under Verwaayen, with mixed results. Alcatel-Lucent posted its first profitable year in 2011 since the merger, but 2012 has been less kind, and Verwaayen admitted during the conference call that executives may have misread the industry in their earlier forecasts for the year.

Through the latest transformation program, Alcatel-Lucent not only will cut the 5,000 jobs from its workforce of more than 78,000, but also will exit underperforming markets, end less profitable service contracts and try to leverage its patents, making them more of a €œprofit center,€ Verwaayen said during the conference call. He did not elaborate on what markets the company will leave or which contracts it will end.

€œ[I]t€™s more than cost saving; we have to look to the structure of our choices,€ he said during the call. €œAnd the structure of our choices means that you have to €¦ admit that you can't be everything for everybody everywhere. And that means that you have to make those choices.€

The end goal is to create €œsustainable profitability for the company,€ Verwaayen said. €œA sustainable profitability for the company is the aim which you need to have, because all of the other points derive from that sustainable profitability for the company.€

He said the one area of the company that will be spared significant cuts will be research and development.

€œR&D is the core capability of this company, we are a technology company, it's a choice we made,€ Verwaayen said. €œWe are an innovation company, we will protect that part. So, we will attack our cost structure in the rest of the organization, which is SG&A, which is the fixed infrastructure in the organization.€

Alcatel-Lucent becomes only the latest company to turn to job cuts to help cut costs at a time of an uncertain global economy and growing competition for increasingly tight IT dollars. Networking rival Cisco Systems announced July 23 it was cutting another 1,300 jobs, even as it looks to bring on 5,000 new employees via its upcoming acquisition of TV software maker NDS Group. The decision to reduce the workforce by 2 percent came a year after the company announced 6,500 job losses as part of an aggressive restructuring program.

Hewlett-Packard announced in May it was slashing 27,000 positions€”about 8 percent of its workforce€”as part of a restructuring plan. Mobile phone maker Nokia said in June it was cutting 10,000 positions, while BlackBerry maker Research In Motion€”like Nokia, under pressure by Apple and device makers running Google€™s Android OS€”announced in July said it was cutting as many as 5,000 jobs.