Today’s announcement that Lucent will reduce its workforce by between 15,000 and 20,000 people has analysts asking how much more the battered telecom business can take.
Lawrence Surtees, senior telecom analyst with IDC Canada in Toronto, said today’s announcement – which included news of a revenue drop and continuing losses in the third quarter – underscores two points.
“It underscores the depth and the crunch of the crunch in the telecom equipment space in North America,” he said. “But it also shows a special situation that Lucent faces. Lucent’s problems aren’t just because of the financial downturns, it’s also because of the management of its business.”
Jon Cheek, spokesperson for Markham, Ont.-based Lucent Technologies Canada Corp., said what Lucent is going through is making it a leaner, more nimble company. What’s more, he added, the employee reduction will just barely affect Canadian offices.
“In Canada, the restructuring will have a minimal impact,” Cheek said. “We have a workforce of about 250 employees. Most of the headcount reductions have already been completed through attrition and the reduction of non-employee contract workers. There will be some further headcount reductions, but only a few.”
Cheek said “a few” means less than five per cent of the workforce, and he expects those cuts to be completed by the end of August.
“This is to accelerate our restructuring, which we are doing globally,” he said. “We made a lot of changes recently and we made a lot of announcements today and we are excited about the prospect of moving forward.”
Lucent Canada’s focus will remain on the large service providers and the large customers.
“We have slashed our overhead and that means more for the bottom-line,” he said. “We are re-sizing the business for the market, but the customers should see no changes in customer units.”
“Many analysts are asking, can Lucent survive?” Surtees said. “These actions today, not just the job cuts but the announcement that yet another part of its business is being spun off, one could ask the question – ‘What do they have left?”
Surtees said he realizes that this isn’t a question anyone would have even thought of just a year ago, but a lot has changed for Murray Hill, N.J.-based Lucent Technologies and for the telecom business since then.
“You would look at someone (after they ask this question) and say ‘Do you need to be committed?'” Surtees said. “Now it is not only a very real question, but the actions today seem to be part and parcel of a last ditch effort.”
Surtees said he was not surprised that Lucent’s restructuring wouldn’t impact Canada.
“Baring them saying they are closing their Canadian offices ever, which I don’t think they can or will, I don’t think they have had that huge a presence,” he said. “It’s not like they went on an excessive hiring binge up here anyway. They don’t have a huge list of clients up here, but they have a couple of very important ones. As long as Lucent has a name, it has to have an office in Canada.”
This work force reduction adds on to the 19,000 the company has already laid off this year. Lucent expects to record a charge related to the reductions in the range of US$7 billion to US$9 billion in the fourth fiscal quarter of 2001.
“This is a company whose share price was the first to drastically plunge, wiping out billions of dollars of market capitalization and at the same time, they fired their CEO last fall and then, earlier in the winter, became a target of class action suits because of their sales practices,” Surtees said. “Lucent is just in a real pickle.”
Cheek doesn’t deny that it has been a rough year for Lucent and for everyone in telecom. That’s why, he said, it’s time for Lucent to focus on what it does best.
“There has been a drying up of financing for the emerging players and a softening in the market, it has had the same effect on us as it has on our competitors,” he said. “We made a lot of changes early and we felt the brunt early. One of those early changes was a complete focus on the service provider market. We got out of the enterprise business last year and then we got out of the opto electronics and micro-electronics business this year and we have a straight focus on large service providers.”
Along with the reduced workforce and the losses, Lucent also announced that it had sold its fibre optics unit for US$2.75 billion to Furukawa Electric Co. Ltd. The company reported a loss of US$1.89 billion, or US$0.55 a share, in its continuing operations in the third quarter, compared with net income of US$286 million, or US$0.09 a share a year ago.
Adding Lucent’s losses from discontinued operations — like its Agere Systems Inc. microelectronics unit — the company reported a net loss of US$3.25 billion, or US$0.95 per share, compared with a net loss of US$301 million, or US$0.09 per share, in the year-ago quarter.
Reported revenue declined 21 per cent to US$5.82 billion in the third quarter compared with US$7.41 billion in the year-ago quarter, and declined 1.6 per cent sequentially from the US$5.92 billion posted last quarter.
Separately, Lucent announced it sold its Optical Fiber Solutions (OFS) business to Furukawa, in a deal that mostly involves cash. However, up to US$250 million of the deal may be paid in CommScope Inc. securities. CommScope and Furukawa will form a joint venture to operate Lucent’s fiber-optics business.
Corning Inc. will pay US$225 million in cash for Lucent’s interests in two joint ventures in China — Lucent Technologies Shanghai Fiber Optic Co. Ltd. and Lucent Technologies Beijing Fiber Optic Cable Co. Ltd.