Sector,
Post 31810. Here it is again. Note BOLD below:
AT&T Chief Faces Big Challenge
With Latest Round of Job Cuts
By JOHN J. KELLER
Staff Reporter of THE WALL STREET JOURNAL
Three months into an extraordinary honeymoon as AT&T Corp.'s new
chairman, C. Michael Armstrong faces his riskiest challenge yet: How to
cut upward of 20,000 jobs without drawing the kind of fire that disabled
his predecessor, Robert E. Allen.
Mr. Armstrong is getting kudos for a surging stock price as Wall Street
awaits his bold plan for transforming AT&T for the next century. On
Monday he plans to publicly spell out his aggressive plan for AT&T,
including massive downsizing, billions of dollars in new investments and
possibly billions more in charges from job cuts and the complete overhaul
of AT&T's network for new services such as the Internet.
Such job cuts undermined Mr. Allen both on Wall Street and on Main
Street. AT&T's former CEO, who gave up the job to Mr. Armstrong in
October, drew especially harsh criticism when he plotted the three-way
breakup of AT&T two years ago. He first denied reports that 20,000 jobs
might get axed -- only to disclose a few months later that a total of 40,000
positions would be cut from the company and its planned spinoffs, Lucent
Technologies Inc. and NCR Corp. Mr. Allen then became a poster boy
for corporate cruelty, depicted in a magazine cover story as a "corporate
killer" and vilified when it was revealed that he had received hundreds of
thousands of stock options in the meantime.
The outrage distracted the company, hurt its stock price and diverted Mr.
Allen's focus from the business at hand. AT&T's costs remain significantly
higher than those of its rivals, yet Mr. Allen was forced to hold his fire on
many of the cuts that he deemed necessary for AT&T's survival. While he
vowed that 17,000 of the planned 40,000 job cuts would be made at the
"new" AT&T after the three-way split, the company ended up cutting only
about 10,000 jobs, most of them through attrition.
Inherited Problems
Now Mr. Armstrong inherits many of the same problems and must steer a
similar course toward sweeping layoffs. The remaining 7,000 job
reductions must still be made, and Mr. Armstrong plans to cut at least
another 15% of AT&T's 130,000 workers. But he has one thing going for
him that Mr. Allen didn't: He's an outsider, having come to AT&T from
General Motors Corp.'s Hughes Electronics Inc. unit, where he was the
chief executive. While Mr. Allen was blamed for a decade of missteps
leading to the necessity of the job cuts, the new chief is tackling the
problems handed to him by his predecessor -- a bloated work force and
lagging investment in the AT&T network. And Wall Street seems more
willing to give Mr. Armstrong some time to do it.
Thursday, after the new job cuts were disclosed in The Wall Street
Journal, AT&T shares rose 50 cents to close at $65.625 in New York
Stock Exchange composite trading. Overall, AT&T's stock price is up
45% since Mr. Armstrong's appointment was announced.
Still, Mr. Armstrong may have to move cautiously to avoid arousing the ire
of the public and his own rank and file, rather than take a "Chainsaw Al"
approach and hack away without remorse. He could do it by attrition, but
that could get sloppy: The number of jobs eliminated won't be enough, and
they could be the wrong jobs. In many cases, highly valued veterans end
up leaving with lucrative early-retirement packages, only to resurface at a
rival company.
"He'll have to be careful to keep the support of the existing employees as
he tries to move forward with the new AT&T," said Brian Adamik, an
analyst at Boston researcher Yankee Group. "But there are redundancies
in many of AT&T's divisions-committees and processes staffed by people
who don't have to be there." Adds Ken McGee, an analyst at Gartner
Group Inc.: "Layoffs are long overdue. AT&T has to be like Nike: Just do
it."
Surgical Dismissals
Mr. Armstrong must act surgically, but that would mean actual dismissals,
raising the heat on him substantially from a public-relations standpoint. For
now it doesn't appear that Mr. Armstrong will have to square the plan with
AT&T's big unions. A spokeswoman for the Communications Workers of
America said Thursday that AT&T had told the union that most of the cuts
would be in management and that many would come through attrition.
Mr. Armstrong's plan shouldn't be a surprise to anyone inside AT&T.
From the moment he arrived at the company, he said his priority would be
to make AT&T the low-cost provider and to invest in new networks that
would keep it ahead of rivals. Sales, general and administrative expenses
amounting to some $15 billion a year, or 29% of annual revenue, would
have to be cut substantially to bring AT&T in line with rivals whose
SG&As as a percentage of revenue are in the low 20s.
"To make AT&T as efficient as its most efficient competitor, he's going to
cut $4 billion to $5 billion from his SG&A," noted Frank Governali, of CS
First Boston. "To achieve it he'll need a job reduction of the magnitude of
20,000."
New Compensation Plan
All managers are also being put on a strict new compensation plan that ties
most of a person's year-end bonuses to the financial performance of
AT&T, including its efforts to cut costs. "Those that stay will be amply
rewarded if AT&T's numbers improve," said Blake Bath, an analyst at
Lehman Brothers Inc.
Mr. Armstrong plans a major overhaul of AT&T's senior-management
team as he tries to streamline and package AT&T's services. Much of
AT&T's team could leave as Mr. Armstrong ties together the company's
giant consumer and business-services units with its newer wireless, Internet
and local-phone businesses. As part of this effort, marketing will be
centralized, cutting substantially the power of AT&T's unit chiefs.
Thursday, one of those managers, Jeffrey Weitzen, who runs AT&T's $20
billion-a-year business-services unit, resigned to become the president and
chief operating officer of Gateway 2000 Inc.
Others also said to be under the gun are Gail McGovern, head of AT&T's
$25 billion-a-year consumer business, and Harry Bennett, who has been
running AT&T's local-phone efforts. AT&T's planned $11.3 billion
acquisition, Teleport Communications Group Inc., a provider of local
communication services to businesses, is expected to become the new
driver for AT&T in the local market, making Mr. Bennett's job
superfluous, said people close to the company. |
