Marconi sees more job cuts, no 2002 bounce
(UPDATE: Adds quotes from conference call, shares, bonds, analysts, investor comment)
By Braden Reddall and Jean Yoon
LONDON, Jan 15 (Reuters) - British telecoms equipment maker Marconi said on Tuesday it may cut another 4,000 jobs from its already shrunken business and cut its sales outlook for the full-year, knocking nine percent off its battered shares.
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Marconi, having axed 9,000 jobs last year and pushed out its top management as losses spiralled out of control, reported a 37 percent year-on-year drop in core sales to 706 million pounds ($1.0 billion) in the third quarter to the end of December.
Crushed by collapsing telecoms markets as indebted operators cut spending, Marconi said it expected the customary improvement in the fourth quarter from the third to be less pronounced than last year, and predicted no recovery for the next year.
The group, which had reported a 5.1 billion pound pre-tax loss in the six months to the end of September, has been hit by the same capacity glut hurting larger North American rivals such as Nortel (Toronto:NT.TO - news), Lucent (NYSE:LU - news) and Ciena (NasdaqNM:CIEN - news).
But Marconi's new job cuts, costing 100 million pounds to push through but expected to save 200 million pounds a year by March 2003, would allow the company to generate cash if it hits an average core sales target of 800 million pounds a quarter.
``We've now decided that we will generate cash and profit at this level,'' Chief Executive Mike Parton told reporters.
The break-even sales level would fall to 675 million pounds per quarter once the restructuring was complete.
Parton highlighted a largely successful debt-cutting effort, which helped restore some credibility in the company and insisted Marconi now had a viable future.
``I think there are many fewer questions now about whether we're going to survive then there were three months ago. I think we've stabilised the business. I'm certain we're going to make it,'' he said in a conference call.
SHARES AND BONDS DROP
By selling subsidiaries in industries ranging from medical systems to gasoline pumps to ink-jet printers, Marconi has cut net debt to 3.5 billion pounds, or 2.9 billion including recent disposals. The figure swelled to 4.4 billion pounds last year.
But one trader expressed disappointment debt had not fallen lower, and analysts said the shares had taken a hit because of lower full-year expectations.
``If you do the sum their annual sales comes to 3.15 billion pounds, and the market was going for higher,'' said Robin Hardy, analyst at WestLB Panmure.
Bond prices fell sharply, and Marconi shares fell as much as 16 percent to their lowest level for around two months, before paring losses to trade 8.4 percent lower at 35-1/2 pence. The stock was worth 12 pounds as recently as 16 months ago.
Marconi said it made an operating loss of 130 million pounds in the third quarter, with operating cash outflow of 45 million. The UK was a particularly hard-hit market, with big players like BT Group Plc (quote from Yahoo! UK & Ireland: BT.L) making heavy cuts to spending.
``Customers are heavily indebted so it's hardly surprising that sales are low. Marconi has got to cut its cost base to keep costs under control,'' said David Rough of top-five shareholder Legal & General, adding he was unsurprised by the job cuts.
A quarter of the 4,000 jobs lost would be in the UK, another quarter would be in the U.S., while the rest will be elsewhere. Including positions lost in the sell-off programme, Marconi's eventual 25,000 headcount will be half the level of a year ago.
The company, which moved heavily into telecoms equipment after shedding its GEC defence business, was dumped from the blue chip FTSE 100 share index of leading British stocks last year after billions of pounds were wiped off its valuation.
It has been trying to renegotiate loans with its banks and last month bought back $220 million of bonds to cut its interest payments. The group said it was unlikely these bonds would be sold on the market.
In early trade, Marconi's five year euro bonds were bid at 50 percent of face value, down around four points across the board.
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