WSJ/ Tech Center: Pacific Century CyberWorks Cuts 506 Jobs, Citing Bad Economy and Tough Competition
December 6, 2001
By MATT POTTINGER
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Pacific Century CyberWorks Ltd. axed 506 jobs and hinted at further cuts, pleasing some investors but swelling the ranks of Hong Kong's unemployed.
Richard Li, chairman and chief executive of the telephone company, announced the layoffs in a letter to employees Wednesday, saying they were a "direct result of the extremely difficult economic situation in Hong Kong and globally, and of intense competition within our industry." PCCW, which is the city's largest employer after the government with 13,500 local workers after the cuts, also will impose freezes on wages and hiring for 2002.
What is more, Mr. Li wrote: "It is not possible to give assurances that there will be no further redundancies."
Investors viewed the cuts as mildly positive, bumping up PCCW's share price by 1.15% to close at 2.18 Hong Kong dollars (28 cents) on the Hong Kong stock exchange. The layoffs will cost the company a one-time charge of HK$78 million in the form of severance packages, but will save HK$190 million annually thereafter, a senior executive said.
The global economic slowdown has hurt telecommunications companies world-wide. But analysts said PCCW's decision to cut jobs had less to do with the economic environment than with company-specific problems such as rising competition following industry deregulation and PCCW's bloated corporate structure. The government in 1995 opened PCCW's monopoly on fixed-line service to rivals, which have been gradually biting into its market share.
1CyberWorks to Lay Off 340 Employees to Reduce Costs in Its Internet Business (July 4)
Deutsche Bank researchers forecast that PCCW's share of the fixed-line market, which provides the bulk of PCCW's revenue, will fall to 86% by year's end from 92% at the end of 2000.
With 13,500 employees in Hong Kong, and an additional 1,500 in mainland China and elsewhere, PCCW appears to be overstaffed, they say -- a problem that company officials have acknowledged, and now appear to be addressing. When PCCW took over the telephone business from Cable & Wireless last August, Mr. Li pledged to refrain from making any layoffs for a year. Shortly after that deadline passed, the company laid off 340 people, but analysts said it would have to go further to cut into its fixed costs and raise its share price, which has fallen 59% this year, making it the worst performer on the Hang Seng Index.
"We're in very, very intense competition since the deregulation," said the senior executive. "For the economy, we don't see much light at the end of the tunnel. If you don't start to be more efficient and cut costs, we're going to be in trouble."
That is bad news for Hong Kong, whose unemployment rate rose to 5.5% in the August-to-October quarter and is expected to continue rising well into next year.
--John Ryan of contributed to this article.
Write to Matt Pottinger at matt.pottinger@awsj.com2
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