Alcatel further slashes work force; US chief resigns

In an effort to drastically slash operating costs, Alcatel announced Thursday it will cut 20,000 staff and contract employees worldwide this year, paring 15% off its 130,000-person work force.

But perhaps the most dramatic personnel move was Alcatel USA chief operating officer Krish Prabhu’s announcement he would resign his executive post and take a seat on the Alcatel board. Prabhu was appointed as chief operating officer in 1999, when he was given the task of integrating Alcatel’s U.S. acquisitions and spearheading its American strategy.

But Alcatel reported an 11% decline in North American sales, while its European operations stayed flat and its Asia Pacific sales skyrocketed 101%. Despite declining revenues from U.S. broadband operations, Alcatel’s overall revenues fell from $6.7 billion to $5.9 billion for the second quarter and its operating profits decreased 77%, from $521 million to $120 million. The second-quarter figures do not include revenues and profits from Nexans, the cabling unit Alcatel floated this summer.

As expected, Alcatel reported a loss of $2.73 billion for the quarter, much of it attributable to one-time charges for restructuring layoffs and inventory write-downs. The company’s new layoff plans, combined with reductions in operating costs and capital expenditures, are expected to save the company $882 million, said Serge Tchuruk, Alcatel’s CEO.

Alcatel outlined plans earlier this month to cut 3,500 staff but dramatically escalated those plans yesterday. Alcatel will cut 14,000 positions directly from its ranks, it has canceled contracts with 4,000 independent workers and has wiped the salaries of an additional 2,000 employees from the books through transfers to its outsourcing partners. Of the 14,000 direct layoffs, 5,000 will be in the U.S., where sales are suffering most, 1,000 will be in its Asia-Pacific operations, and 4,000 will be in Europe. The remaining 4,000 will come from Alcatel’s other global divisions.

Tchuruk said Alcatel’s U.S. operations are hampering what would be much more positive results when compared to the dismal state other vendors are in. Despite poor sales in North America, Tchuruk said he expects Alcatel to profitable by the end of the year.

“The big question is whether the big slump in the USA will bring a contagion to Europe,” Tchuruck said.