PARIS Nov 24 Telecom equipment maker Alcatel-Lucent SA (ALUA.PA) is unlikely to follow in the footsteps of competitor Nokia Siemens Networks (NSN) [NOKI.UL], which announced massive layoffs and a new strategy on Wednesday, despite facing similar challenges in reaching profitability.
Analysts say Alcatel-Lucent, given its already high-rate of cash burn, can't really afford to make such deep cuts as NSN. And such a move could irk the French government, which owns a 2 percent stake in Alcatel, given the sensitivity around job cuts in the run-up to presidential election in May.
France recently blocked layoff plans at state-owned nuclear reactor maker Areva SA (AREVA.PA) and scuppered talk of job cuts at car maker PSA Peugeot Citroen (PEUP.PA). [ID:nL5E7ML3LL] [ID:nL5E7MH2QZ]
Finnish-German NSN said on Wednesday it would axe nearly a quarter of its workforce to save 1 billion euros ($1.3 billion) a year. It also plans to exit roughly half a dozen business lines in which it has a weak position, including fixed broadband access, fixed voice and wireless technology WiMAX.
"Alcatel won't make a big announcement like that of NSN, especially given the delicate political context in France right now," said one analyst.
A spokeswoman for Alcatel-Lucent, whose shares were up 3.8 percent by 1356 GMT in a broadly flat French market, declined to comment on the company's plans for cost cuts or layoffs. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a Breakingviews column on Nokia Siemens Networks restructuring plan, click on [ID:nL4E7MO11Y] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Yet pressure is rising on Alcatel-Lucent Chief Executive Ben Verwaayen to show progress on the long-mooted turnaround of the group, which hit a stumbling block in the third quarter as cash burn worsened. [ID:nL6E7M40Y5]
At that time, Alcatel-Lucent pledged to cut 500 million euros of costs, including 300 million in variable costs, in an effort to get the company back on track.
Labour unions at Alcatel-Lucent fear Verwaayen will cut jobs to make those cost savings, but say specific talks with the company have not yet begun. "The 2012 budgets are being done now, and we are very worried," said one union official.
For telecom gear analyst Pierre Ferragu, the respective plans at NSN and Alcatel-Lucent show just how tough the environment is for the two mid-sized European players.
Both have faced aggressive pricing from low-cost Chinese rivals and an economic downturn that has forced telecoms companies to cut spending. Since being formed in mergers, neither group has been able to turn an annual profit.
“NSN has decided that it cannot be successful with its current footprint and needs to focus more and get much slimmer to be profitable," said Ferragu.
"Alcatel-Lucent shareholders may well wonder whether Alcatel-Lucent shouldn’t be doing the same thing ... This could clearly increase the pressure on Alcatel-Lucent to consider more drastic moves to turn the company around.”
($1 = 0.7490 euros)
(Reporting by Leila Abboud, Tarmo Virki and Marie Mawad; Editing by David Holmes)
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