The Pak Banker - - COMPANIES/BOSS -

Tele­com equip­ment maker Al­ca­tel-Lu­cent 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 (ERIC-B.ST) 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 bluechip CAC 40 in­dex (.FCHI) in early trad­ing, down some 7.5 per­cent. Its mar­ket value is about 1.9 bil­lion eu­ros.

Un­der Ver­waayen, Al­ca­tel fi­nally reached its first an­nual profit since it was formed in the 2006 merger of Al­ca­tel SA and Lu­cent Tech­nolo­gies, but the CEO has not been able to de­liver on a promised turn­around plan in full.

Ver­waayen played down the idea Al­ca­tel would sell off large chunks of its busi­ness, say­ing it wanted to re­main a ma­jor equip­ment provider with a broad prod­uct port­fo­lio. "The em­pha­sis to­day is not on as­set sales but on a more fo­cused ap­proach to ef­fi­ciency at the com­pany," he said on a call with re­porters.

"But we do rec­og­nize that we can­not be all things to all peo­ple." Al­ca­tel shares have plum­meted nearly 25 per­cent this year to reach their low­est point ever. In com­par­i­son, the Euro­pean tech­nol­ogy in­dex (.SX8P) has risen 4.1 per­cent this year. Al­ca­tel said it would seek to get rid of un­prof­itable ser­vices con­tracts in which it man­ages net­works for op­er­a­tors, squeeze more money out of its patent port­fo­lio, and exit or re­struc­ture in coun­tries where it is weak.

No de­tail was given on where the job cuts would oc­cur, nor what as­set sales might be con­sid­ered. Ver­waayen told re­porters on a con­fer­ence call that job cuts would be "global" and would not in­clude re­search and de­vel­op­ment staff. Al­ca­tel also gave a new an­nual profit tar­get of post­ing a sec­ond-half ad­justed op­er­at­ing mar­gin bet­ter than the first half when it stood at mi­nus 3.7 per­cent.

Asked whether he still hoped the com­pany would be prof­itable this year, Ver­waayen said: "This is a very dif­fi­cult mar­ket to call ... We think the sec­ond half will be bet­ter than the first." He added that weak­ness in de­mand was not lim­ited to tele­com op­er­a­tors in Europe and chal­lenges were crop­ping up all over the world. "The mar­ket con­di­tions are pretty tough and we don't think the mar­ket will im­prove any­time soon," he said. Al­ca­tel con­firmed its prior tar­get of aim­ing for a "strong pos­i­tive net cash po­si­tion at the end of 2012".

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