Lucent cuts 10,000 jobs

January 24, 2001: 11:10 a.m. ET

Telecom equipment maker seeks to cut $2B in costs via restructuring

NEW YORK (CNNfn) - Lucent Technologies said Wednesday it is cutting 10,000 jobs -- about 8 percent of its work force -- and taking a charge of up to $1.6 billion as part of a major restructuring meant to cut costs.

The troubled telecom equipment maker said the plan was meant to cut costs by $2 billion.

The news sent shares of Lucent (LU: Research, Estimates), among the most widely held in the United States, up 69 cents to $19.50 in trading Wednesday.

Lucent also reported a fiscal first-quarter loss from continuing operations of $1.02 billion, or 30 cents a share, 3 cents wider than Wall Street forecasts of a loss of 27 cents a share. A year earlier Lucent earned $1.08 billion, or 33 cents a share.

Revenue in the quarter ended Dec. 31 declined 26 percent to $5.84 billion.

Chairman Henry Schacht said the moves are meant to "serve as the foundation for putting Lucent back on track."

Lucent ousted former chairman Richard McGinn in October and brought back Schacht, the company's CEO from 1995 to 1997, to run the company. At the same time, Lucent issued its fourth earnings warning of the year.

The company has lost out to competitors in several key markets, including optical gear being sought by many of its biggest customers, according to industry analysts.

Lucent has also been slow to get new products out of the gate ahead of competitors, analysts said. During a conference call with Wall Street analysts Wednesday, the company also cited decreased demand and spending by telecom companies on equipment and technology as they struggle to re-evaluate their needs and the direction of new high-speed communications services.

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"There were a number of service providers delaying spending as they refocused their spending needs," Chief Financial Officer Debby Hopkins said, noting that the company's service provider networks business incurred a 36 percent decrease in revenue.

As a result of decreased customer demand, Lucent reported inventories increased more than 22 percent during the quarter.

"Clearly all of this is unacceptable," Hopkins said.

Lucent also plans to cut its capital spending by $400 million this year and has arranged a new $4.5 billion line of credit from J.P. Morgan Chase, Citicorp and other banks.

During the call, Schacht and Hopkins declined to provide guidance on the rest of 2001, saying only that the cost-cutting measures will be complete by the second quarter ending in March, but that the effects could be felt further out in the year. By fiscal year-end in October, Lucent hopes to reduce its expenses by $2 billion a year.

"The guidance we're prepared to give is we're going to see sequential growth in the top-line quarter over quarter and growth on the bottom line quarter over quarter," Schacht said. "We need to perform. Performance is our mantra, and out here we are working hard to perform."

Some of 10,000 job cuts, which will take place between Wednesday and Feb. 15, will come through attrition. Marketing, sales and the corporate center will take the heaviest cuts.

An additional 6,000 jobs, representing about half the company's manufacturing employees, are to be shifted to contract manufacturers, the company said. These actions will mainly affect manufacturing plants in Oklahoma City and Columbus, Ohio, Schacht said.

Lucent also plans to reduce working capital by $2 billion by the end of fiscal 2001, and will appoint an executive to lead a company-wide program of capital reductions.

Despite the sweeping changes, the company said further restructuring could come down the road.

"Lucent will continue to review its internal processes throughout fiscal year 2001, which may result in additional cost structure improvements and associated business restructuring charges as it moves from a multi-divisional company to one with a single focus on the service provider market," Schacht said.

The company also announced $4.5 billion in financing through J.P. Morgan and Salomon Smith Barney. Part of the new credit facility replaces the current $2 billion line of credit up for renewal in February, while another $2.5 billion will go to Agere Systems.

Agere is the company's former microelectronics unit, which it plans to spin off in an initial public offering in March.