Alcatel to Shed Most of Its Factories to Reduce Costs (Update6)
By Jad Mouawad
Paris, June 27 (Bloomberg) -- Alcatel SA, a French phone- equipment maker whose shares have fallen 62 percent this year, plans to sell most of its factories to cut costs, Chief Executive Serge Tchuruk said. The sales may affect 11,000 workers.
``Our priority isn't in manufacturing,'' Tchuruk told reporters at Alcatel's Paris headquarters. The company, which had about 120 plants worldwide five years ago, plans to reduce that number to a dozen or fewer, Tchuruk said.
Since 1995, when Tchuruk took over, Alcatel has focused on making equipment for phone companies and has sold businesses that made products such as batteries and trains. Alcatel, which is farming out its mobile phone production and selling some consumer electronics businesses, expects a loss in the second quarter.
``They're taking advantage of the fact they're facing a crisis to streamline their business,'' said Antoine Joly, an analyst at Aurel-Leven who rates the shares ``accumulate.''
Europe's No. 4 phone-equipment maker, like most of its rivals, has seen sales growth slow this year as phone and Internet companies trim spending. Tchuruk will take a 3 billion-euro ($2.6 billion) charge this quarter to reorganize Alcatel's business, leading to its first loss since 1995.
``Outsourcing of our production will affect about 10 percent of our global workforce,'' said Klaus Wustrack, a spokesman for Alcatel. The company has 110,000 workers, including some 28,000 in research and development. The company wouldn't say which plants will be sold or whether any workers will lose their jobs.
`Long Process'
Alcatel plans to sell some factories to contract manufacturers who will keep making products for Alcatel, Tchuruk said. The company also plans to hold onto plants making undersea networks, satellites, and optical equipment.
``Our business today is an R&D business,'' said Tchuruk, who added that these shifts have been underway at the company for years. ``It's a long process.''
Tchuruk declined to give a timing for the plant sales. He said he would first tell Alcatel's workers of any plans to sell or close factories.
``This highlights how bad the telecommunications market is right now,'' said Philippe Lecoq, who helps manage about 1 billion euros at Ofivalmo Gestion, including Alcatel shares. ``Nine months ago, Tchuruk was saying everything was fine. One year on, he's been proved wrong.''
Potential buyers for Alcatel's factories include Solectron Corp., Celestica Inc. and Flextronics International Ltd., analysts said.
Worst Performer
Alcatel shares are the worst-performing on Paris's benchmark CAC 40 index this year. Today, they rose 26 cents, or 1.1 percent, to 23.03 euros, valuing the company at 27.9 billion euros. The CAC index had dropped 15 percent this year.
Alcatel's American depositary receipts, which each represent one share, fell as much as 31 cents, or 1.6 percent, to $19.67.
In April, Alcatel said it would transfer mobile-phone production to Flextronics to stem losses at the handset unit. Earlier this month, the company agreed to sell its rapid-Internet modem unit to Thomson Multimedia SA for 456 million euros.
Alcatel also sold its cable unit in an initial public offering this month.
Yesterday, Alcatel offered buyouts to 9,000 U.S. workers to try to trim costs. This year, Alcatel has eliminated 2,000 jobs in the U.S., which now accounts for 7 percent of its workforce. Its rivals, including Nortel Networks Corp. and Cisco Systems Inc., have also reduced their payrolls by thousands of people.
``Alcatel has lagged rivals in restructuring its businesses,'' said Aurel-Leven's Joly.
Not the First Time
Tchuruk is narrowing Alcatel's business, betting optical equipment, phone networks, and space technology will show the most growth as demand for faster data and video transmission picks up. The plan to sell most of Alcatel's factories is not the first time that the former oil executive has applied drastic methods in the face of flagging sales.
When he was named at Alcatel, Tchuruk took a 23.9 billion French franc ($3.1 billion) charge on 1995 earnings to fund a reorganization -- which led to the largest full-year loss in French corporate history. He slashed 30,000 jobs and sold $12 billion in assets ranging from high-speed trains to magazines and a vineyard.
Tchuruk also plans to sell the 8.6 percent stake Alcatel owns in Framatome SA, the French state-owned nuclear equipment-maker. The sale to the state is expected by the end of the year as Alcatel aims to reach its target of selling 2 billion euros of assets this year.
Alcatel also plans to sell its 0.8 percent stake in Vivendi Universal SA and 0.3 percent in Societe Generale SA before the end of the year, depending on market conditions.
Today's remarks come as Tchuruk, speaking yesterday at the Wall Street Journal annual CEO summit in London, said the slump in the technology market may be coming to an end.
``In the U.S., it looks like we've hit the bottom,'' he said. In Europe, ``overall I think the market has hit the bottom. The question is when it can recover.'' |
