Dissatisfied with its current profit position after the second quarter of 2012 and concerned about the future Alcatel-Lucent (Euronext Paris and NYSE: ALU) management today unveiled “The Performance Program,” an effort to cut costs and reshape the company. That reshaping will cost about 5000 people their jobs, according to Alcatel-Lucent management.
“Despite having demonstrated our ability to deliver operational profitability, it is clear from the deteriorating macro environment and the competitive pricing environment in certain regions challenging profitability that we must embark on a more aggressive transformation,” said Ben Verwaayen, CEO Alcatel-Lucent, via a press release. “We are therefore launching today The Performance Program to accelerate our transformation and reduce costs by Euro 1.25 billion by the end of next year in order to keep ahead of market realities. These times demand firm actions.”
Key parts of The Performance Program, which the company expects to complete by the end of next year, include:
- a cost reduction target of Euro 1.25 billion
- additional employee reduction worldwide of around 5,000 people
- exiting or restructuring unprofitable managed services contracts with associated headcount reduction
- exiting or restructuring of unprofitable markets
- managing the company’s patent portfolio as an independent profit center
“These times demand firm actions, but as this will involve shrinking our employee base and exiting certain non-profitable contracts we will use The Performance Program to execute in a measured fashion,” Verwaayen added. “However we are taking aggressive action that will improve our agility in the marketplace while remaining fully committed to both our customers and continuing to deliver world-class innovation.”
Inauguration of the cost-cutting program came as Alcatel-Lucent reported that second quarter revenue increased 10.6% sequentially, but decreased 7.1% year-over-year to Euro 3.545 billion. At constant currency exchange rates and perimeter, those figures worsen however; the sequential revenue increase dips to 9.5% and the shortfall versus the same quarter of 2011 increases to 13.2%.
Its Networks activities were hard hit in the quarter, seeing a 16.4% revenue decline versus the same period one year ago at constant exchange rates. While IP business grew by a single-digit percentage, Alcatel-Lucent saw double-digit declines in both its Wireless and Optics units. The Optics division garnered Euro 542 million in revenue, down 16.0% from the second quarter of 2011. The terrestrial optics business experienced a high-single digit decline, which would have been worse except that resilience in next-gen products partially made up for declines in legacy optics products. Wireline proved a bright spot, increasing sequentially thanks in large measure to increased demand in fiber access. In fact the quarter marked the first time that the company’s fiber-based access revenues surpassed those of their copper-based access products. The Software, Services & Solutions revenues dropped at a high single-digit rate, while the Enterprise segment saw revenues decline at a mid-single-digit rate.
For the quarter, Alcatel-Lucent reported net loss (group share) of Euro 254 million, Euro 0.11 per diluted share ($0.14 per ADS). These figures include the negative after tax impact from Purchase Price Allocation entries of Euro 33 million.