Alcatel to axe 5,000 jobs as battles downturn

Thu Jul 26, 2012 3:59am EDT
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By Leila Abboud

PARIS (Reuters) - Telecom equipment maker Alcatel-Lucent ALUA.PA will axe 5,000 jobs and exit or restructure unprofitable markets in a drive to cut costs by 1.25 billion euros ($1.5 billion) by the end of next year as it battles stiff competition and weak demand.

The move comes after the Franco-American group warned last week it would miss its 2012 profit margin target and announced a second-quarter adjusted operating loss of 40 million euros.

The decision to cut 6.4 percent of the group's global workforce of 78,000 is a sign Chief Executive Ben Verwaayen believes bolder action is now needed to stem a plummeting share price and perennial problems like cash burn and high costs.

However, the proposals are more limited than rival's Nokia-Siemens Networks pledge to cut one-quarter of its staff, or 17,000 jobs, and sell a raft of fixed-network product lines to focus more narrowly on mobile equipment.

Alcatel is also embarking on the plan as major telecom operators are cutting back spending on network equipment in a faltering global economy and competition with Huawei Technologies HWT.UL and Ericsson (ERICb.ST: Quote) remains fierce.

Bernstein analyst Pierre Ferragu said the plan was not ambitious enough given the group's challenges and wouldn't solve structural issues like its too-broad product range.

"On the contrary, the layoffs proposed will cost a lot of cash and risks accelerating the company's liquidity problems. We are more than ever in a situation where Alcatel risks not being able to refinance its needs in 2014," he said.

Shares in Alcatel were the worst performers on the French blue-chip CAC 40 index .FCHI in early trading, down some 7.5 percent. Its market value is about 1.9 billion euros.   Continued...

Visitors walk at the Alcatel-Lucent booth at the Mobile World Congress in Barcelona February 28, 2012. REUTERS/Albert Gea