Alcatel CEO Reports Record Loss as Phone Sales Slump (Update1)
By Molly Schuetz
Paris, Jan. 31 (Bloomberg) -- Alcatel SA Chief Executive Officer Serge Tchuruk reported an almost 5 billion-euro ($4.3 billion) loss for 2001 today, one of the largest in French corporate history. Investors say the worst may be past.
Tchuruk, 64, spent more than $17 billion since 1998 building Alcatel into one of the biggest phone-equipment makers, and even tried to buy Lucent Technologies Inc. last May. Now he's changed tack and begun cutting costs as demand for network gear plunges.
Alcatel is trimming costs by a fifth so it can break even on quarterly sales of less than 5 billion euros. Tchuruk is slashing a third of the workforce and selling nearly half the company's factories. That helped lower debt to 2.7 billion euros at the end of 2001, below a 4 billion-euro target, Tchuruk said today.
``This could finally be a decent year for Alcatel,'' said Xavier Debeugny, who manages 80 million euros at Oddo & Cie and holds Alcatel shares. ``I'm more reassured today than I was yesterday on the quality of their balance sheet.''
Tchuruk said he expects sales of network gear will begin to recover in the second quarter, and stuck to a forecast for an operating profit this year. By reducing inventory and pressuring clients to pay bills sooner, Alcatel generated more than 2 billion euros in positive operating cash flow in the fourth quarter.
Alcatel's stock, the worst performer on the Dow Jones Euro Stoxx 50 last year, rose as much as 1.19 euros, or 6.9 percent, to 18.39 euros today. The shares have fallen 72 percent in the past 12 months, compared with a drop of 32 percent for Siemens AG, 60 percent for Ericsson AB, and 81 percent for Nortel Networks Corp.
Share Rebound?
Tchuruk said at a press conference that while he's ``not happy'' with the performance of Alcatel stock, he's ``convinced'' it will rebound once the market returns to growth.
Alcatel reported an operating loss of 368 million euros in the fourth quarter, compared to operating income of 832 million euros a year earlier.
For the full year, the company's operating loss was 361 million euros, compared to income of 2.1 billion euros a year earlier. Sales, which fell 30 percent in the fourth quarter to 6.77 billion euros, will probably drop another 30 percent in the first quarter from the fourth.
Tchuruk earned a reputation as a cost-cutter after helping revive Rhone-Poulenc SA, now Aventis SA, gas-maker CEF-Chimie SA and Total SA, now TotalFinaElf SA.
When he took the helm at Alcatel in 1995, he shed businesses ranging from high-speed trains to vineyards, concentrating on optics, networks and space technology. Riding a telecommunications boom the company had profit of 1.3 billion euros in 2000 on record sales. He was named French Manager of the Year by Le Nouvel Economiste that year.
Global Crossing
Since then, indebted phone companies such as BT Group Plc have focused more on selling assets than expanding networks. Others, like Global Crossing Ltd, are in danger of going out of business. The Bermuda-based operator of a fiber-optic network, which filed for bankruptcy protection this week, owes Alcatel about 40 million euros, the French company said today.
The industry outlook for 2002 isn't much better. Tchuruk said he expects this year ``to remain challenging.'' Motorola Inc. and Ericsson both predict a 10 percent decline in demand for mobile network gear this year.
Last summer, Tchuruk decided Alcatel would sell 41 components units and a distribution unit, exiting most of its manufacturing operations to focus on research and development.
``I'm not sure it's a good strategy,'' said Jan-Eric Umiastowski, a fund manager at Financiere Rembrandt in Paris who no longer holds Alcatel shares. ``When you outsource manufacturing, you lose control of quality.''
Shedding Factories
Last year, Alcatel farmed out production of its handset manufacturing to Flextronics International Ltd. and said it's seeking a partner to help develop mobile phones. In recent weeks, Alcatel has sold three European factories to Sanmina-SCI Corp., a distribution unit to Platinum Equity LLC and a computer services unit to Electronic Data Systems Corp.
Born in 1937 in the Mediterranean port town of Marseilles to Armenian refugees, Tchuruk shortened his name from Tchurukdichian in 1991 to make it easier to pronounce.
He studied engineering at France's Ecole Polytechniques before landing a first job at Mobil Corp. in 1964 after responding to a newspaper ad. He remained at Mobil, now Exxon Mobil Corp., for 16 years, spending part of that time in the U.S.
The year Tchuruk arrived at Alcatel he took a 23.9 billion franc ($3.15 billion) charge on earnings to fund a reorganization -- which led to a full-year loss of 3.9 billion euros.
Tchuruk slashed 30,000 jobs and sold $12 billion in assets. Three-years later, Alcatel reported a record profit of 2.3 billion euros. Sales reached a record in 2000 as the shares touched an all- time high of 97.15 euros.
Some investors say Tchuruk hasn't lost his touch.
``I have confidence in Tchuruk,'' said Jacques-Antoine Bretteil, who manages $700 million at International Capital Gestion in Paris, including Alcatel shares. ``He sees his ideas through.''
Tchuruk, who declined to be interviewed for this article, was paid 2.65 million euros in 2000. |
