Europe's Telecom Companies Behind US In Shedding Staff Numbers
Friday September 20, 10:19 am ET
By Gren Manuel, Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Alcatel SA may have announced one of Europe's biggest ever corporate redundancy programs Friday - but European telecommunications equipment makers are still being slower to cut than their North American rivals.
Initially in denial that the bubble had burst, Europe's players are still finding it difficult to wield the knife, analysts say.
"They have been slower in Europe. It's not because they're not trying. It's because it's more complex," said Philippe Schmitt, an analyst with BNP Paribas in London.
Schmitt says Europe's makers have been quick to cut back on their operations in the U.S., where cutbacks can be made swifter. But regulations in France, Germany and other European countries mean that nearer home they're slower.
The slow progress comes despite a mood in the sector even darker than it was six months ago. Then, some optimists had hopes for a recovery in the last quarter of 2002. Now some analysts have already given up hope for the whole of next year, with the exception of some who still see light in one corner of the industry - the mobile phone handset business dominated by Nokia Corp. (NOK).
Schmitt says many players have given up hope on longer-term predictions, just taking each quarter as it comes after making so many incorrect calls in the past.
"Most of the brokers and the companies have got their market assessments wrong," he says.
The bleakness of the outlook for the major equipment makers is leading to suggestions that even Alcatel, the Paris-based group that is Europe's flagship maker of equipment for fixed-line networks, could follow in the steps of fellow telecom maker Marconi PLC (MONI), which last month was forced to hand control to banks and bondholders after a dramatic collapse in orders left it unable to refinance itself.
While their U.S. rivals had started to smell problems in mid 2000, Europe's makers claimed that the steady spending by France Telecom SA (FTE), Deutsche Telekom AG , BT Group PLC and other European giants would keep the order books full.
They were wrong. These giants, bled of cash by license fees for third generation mobile networks, soon found themselves in deep financial trouble - and slashing capital spending was their first choice route for conserving cash.
And the trend continues. In the last week alone, Cable and Wireless PLC (CWP) said it would knock GBP200 million - around 20% - off its current year capital spending while analysts have trimmed around EUR500 million from their estimates for full-year capital spending by Orange SA (F.ORA).
In addition, with France Telecom now under an interim management team analysts reckon that long-term capital spending may be under even tighter control than before.
"For 2003 the industry as a whole is still too optimistic," says Francois Meunier, an analyst with Banc of America Securities.
Now the watchword among equipment makers is "run rate," the level of revenue they're expecting each quarter - and the tactic is to try and slash costs to get these below the run rate level.
But this relies on management guessing the right run rate - and Alcatel's announcement Friday contains a further cut. Cutting run rate from EUR4 billion a quarter to EUR3 billion a quarter is the accounting behind Friday's massive redundancy program.
Some analysts have said that Alcatel's cuts aren't deep enough. Bear Stearns' credit analyst Matthew Little said in a note Friday that "the crucial question remains what happens if the market deteriorates further from these levels, as investors will be conscious that Alcatel has already revised expectations twice before this year."
But Alcatel's cuts are still deeper than European rivals, even if raw statistics are sometimes difficult to compare as some job cuts are due to sell- offs and spin-offs.
Alcatel employed 130,000 at its peak and this will be brought down to 60,000 at end 2003, 46% of peak levels.
By contrast, Ericsson , the European flagship for making equipment for mobile networks, has employee numbers still at 71% of their 107,000 peak - and even this relatively modest shrinkage is in part due to divestments and the creation of a joint venture, not layoffs.
Siemens AG's Information and Communication Networks unit, which makes fixed-line equipment, still has around 67% of the 54,000 employees it had at its peak, while Marconi PLC's cutbacks have been more bloody, taking its 38,000 telecom workforce at its peak down to about 60% of that figure.
Yet even this carnage is light by the standards of the North American companies that are its competitors.
Nortel Networks will soon be around 35% of its peak size, while Lucent Technology Inc's most recent cuts mean it will only have around 33% of its peak employee levels.
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