Alcatel-Lucent’s painful restructuring continues, as its new CEO Michel Combes executes his Shift Plan amid talk that he might seek to sell his wireless business to Nokia. The latest step in the plan is to axe a further 10,000 jobs, about 15% of the workforce, by the end of 2015 as the firm looks for €1bn in cost reductions and a return to sustained profitability.
The scythe will fall around the world, with 4,100 jobs going in the EMEA region, 3,800 in Asia Pacific and 2,100 in the Americas. A further 900 employees could be moved internally, transferred to partners or redeployed by 2015 as part of the transformation. The heaviest cuts will come in legacy business areas. At the end of 2012, ALU had about 72,000 employees, having gone through several rounds of lay-offs already under previous CEO Ben Verwaayen’s turnaround program, which was often criticized for being too timorous.
Another key aspect of the Shift Plan, which aims to restore profits and ensure a ‘sustainable financial future and successful company transformation’, is to halve the number of ALU’s business hubs worldwide, which will one element of the cost-cutting plan. When Combes originally outlined his strategy, he refocused the company around just two key businesses ‘ IP and cloud networking, and ‘ultra-broadband access’, whether wireless or wireline. The mobile activities were repositioned mainly as a cash cow while IP was identified as the main growth generator.
The tighter focus, which mirrors rival Nokia Solutions and Networks’ reinvention as a pure mobile broadband vendor, is designed to make ALU more competitive in its chosen sectors while reducing fixed costs. As well as the smaller headcount and administration and sales overheads required by the new structure, ALU will also cut costs by slashing R&D investment in legacy technologies by 60%. Meanwhile, 85% of the remaining R&D budget will go on the core platforms, including LTE and IP, up from 65%.
‘To carry out this plan we must make difficult decisions and we will make them with open and transparent dialog with our employees and their representatives. The Shift Plan is about the company regaining control of its destiny,’ said Combes.
Investors welcomed the latest moves, sending ALU stock higher ‘ it has nearly trebled in value since Combes took the helm earlier this year, bringing a reputation as a strong cost-cutter and detailed planner from previous roles at Vodafone. However, French trades union CFDT said it would oppose the job cuts.
Alcatel-Lucent was created in 2006 and has suffered repeated losses and seemingly endless rounds of restructuring since. In its most recent quarter, Q213, revenues were up 1.9% year-on-year to €3.6bn but, despite some previous quarters when the firm returned to the black, in Q2 it reported a net loss of €885m, up from €396m in the year-ago period.