Alcatel Lucent Shares Drop on Job Cut News

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Alcatel Lucent’s (ALU) share price dropped 9.4% to $3.49 on Oct 8 following its announcement of cutting 10,000 jobs or 15% of its global workforce by 2015. The French telecom company is downsizing and closing about half of its business centers in order to stop incurring further losses.

The company now plans to shift focus from the older technologies (second and third generation wireless equipment) to high potential newer ones like Internet routing. So, Alcatel Lucent is laying off 15,000 people from its older technologies divisions and hiring 5,000 for the new technologies.

This move is part of the company’s restructuring initiative - ‘The Shift Plan.’ Under this plan, Alcatel Lucent’s chief executive officer Michael Combes intends to trim costs worth $1.36 billion and sell off assets worth $1.36 billion (€1 billion). Through these job cuts, the company expects to lower its costs by approximately 15% by 2015. The Shift Plan is a strategy whereby the company intends to transform itself into a competent IP Networking and Ultra-Broadband Access company.  

Alcatel Lucent has reported profits only in one year out of the seven years of its operation. The company’s cash flow has consistently declined since its inception seven years ago. Alcatel Lucent was formed by the merger of France-based Alcatel and U.S.-based Lucent.

The latest job cut announcement by Alcatel Lucent will primarily be in regions including Europe, the Middle East and Africa. Management intends to slash 4,100 net jobs across these three regions. This apart, the headquarters will also witness about 900 job cuts, the Americas will have 2,100 jobs eliminated and 3,800 employees will be given the pink slip in the Asia Pacific.

While the planned job cuts in France are relatively less, the Prime Minister of France, Jean-Marc Ayrault, mentioned that Alcatel Lucent needs to first negotiate with the unions about this massive job cut plan, as required under the recent reform of the country’s labor code. Under this code, workers have more negotiating rights. The Prime Minister insisted that the restructuring would not be approved unless the labor unions got a good deal.

On Oct 1, Combes had announced the opening of a new state of the art cloud research and development center in Israel. With this, the company now has two ultra modern cloud research and development centers (first one in Silicon Valley), which are believed to be the key drivers for the company’s future growth.

Alcatel-Lucent's cloud facility in Israel operates in close association with the company's Bell Labs innovation arm and is an incubation center for NFV activities and customer projects.

The company has been scoring a number of wins in the segment and although its early days yet, it seems on track to take share from well-entrenched players like Cisco Systems Inc. (CSCO), Juniper Networks Inc. (JNPR) and Ericsson (ERIC) to name a few.

Alcatel currently has a Zacks Rank #3 (Hold).

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