New Alcatel chief prepares to take axe to 8800 more jobs

Patricia Russo

Patricia Russo, who eliminated 30,000 jobs at Lucent Technologies, says she will move quickly to reduce the workforce when she takes over as head of Alcatel after the French company's US$13.4 billion ($21.7 billion) purchase of the biggest US phone-equipment maker.

"We clearly intend to have speed as our bias," Russo said after announcing the sale to Paris-based Alcatel, where she will become CEO.

Russo aims to save US$1.7 billion after three years at the enlarged phone equipment company.

At Lucent she cut the workforce by 50 per cent and in her new post she plans to eliminate 10 per cent of the combined staff, or 8800 jobs.

The combined company will be based in Paris and Russo may have a tougher time closing sites there quickly because of stringent labour laws, said Pacific Crest Securities analyst Tim Daubenspeck.

The enlarged board will have 14 members, seven from each company. The new entity's name hasn't been decided.

Alcatel shareholders will own 60 per cent of the enlarged company and Lucent investors the rest.

Lucent shares have gained 15 per cent this year, still down 46 per cent since Russo's appointment. They slipped 4c to US$3.05 on March 31 in New York Stock Exchange composite trading. Alcatel shares fell 1.5 per cent to €12.77 ($25.05) in Paris.

Russo has to stitch together Lucent and Alcatel, the world's biggest maker of broadband internet gear.

With about US$25 billion in sales, the new company challenges California-based Cisco Systems for the top spot in the total phone and web equipment market and surpasses Stockholm-based Ericsson.

About half of the savings will come as Russo pares back the 88,200 employees at Alcatel. Most of the reductions will come within two years, Russo said in the conference call.

"We expect to take a fair and balanced approach," she said, without offering specifics about the job cuts. "We have mutually identified synergy opportunities."

Russo said there was overlap in sales and marketing. Facilities would be consolidated, she said.

Phone companies including San Antonio-based AT&T and BT in London are spending billions of dollars on networks to deliver video, data and voice services over the internet.

Russo, 53, may have a more difficult time lowering costs in France, according to Prudential Equity Group analyst Inder Singh.

Millions of French citizens are protesting against a labour contract that reduces job protection for people aged under 26. France's unemployment rate is 9.6 per cent, twice as high as in the United States.

"A rapid reduction to operating costs, especially through job cuts in France, may not be feasible," Singh wrote in a March 29 note.

Russo became CEO of Lucent in 2002, charged with stemming US$16.2 billion in losses from the previous financial year. The company's market value had fallen 90 per cent from its high and the workforce had already shrunk by about 60 per cent to 62,000.

She shifted the company to focus on mobile-phone networks and away from the traditional copper phone line business.

Lucent turned a profit in the fourth quarter of 2003 after 13 consecutive losses, and in 2004 won a US$5 billion contract with Verizon Communications' mobile-phone unit.

The agreement with Alcatel comes five years after merger negotiations fell apart over who would run the company.

Russo, whose pay last year including bonuses increased 14 per cent to US$4.75 million, takes over as Alcatel CEO Serge Tchuruk, 68, was preparing to retire. He will be chairman of the new company.

While concentrating on wireless products, Russo fell behind companies including Cisco and Juniper Networks in equipment to build high-speed internet networks.

Profit at Cisco increased 23 per cent in 2004 and 30 per cent to US$5.74 billion the following year. Juniper's earnings tripled in 2004 and then doubled to US$354 million. Lucent's profit last year declined from US$2 billion in fiscal 2004.

- BLOOMBERG