Level 3 cuts headcount almost 24%

Level 3 Communications announced today that it is laying off almost 24% of its work force and will shift its sales efforts to attract established customers instead of bandwidth-hungry start-ups.

According to a company press release, the moves are intended to help Level 3 address the current weakness in the general market and prepare for a market upturn.

Most of the 1400 layoffs will occur in Level 3’s communications business. North America will see 820 job cuts, with 550 positions being eliminated in Europe and 30 in Asia. The company expects to take a one-time charge in the second quarter of about $40 million because of the staff cuts. Deferred projects is expected to create a $60 million charge, a reflection of the company’s capital-expenditure budget being cut to $3 billion for 2001, down from $3.3 billion to $3.4 billion

In addition to the staff cuts, Level 3 said it plans to refocus its sales practices to target established companies. For the past three years, the company has focused on bandwidth-intensive companies, a number of which were start-ups. According to a statement from Level 3 the economic slowdown has had “a negative impact on a substantial number of those customers,” prompting the change in strategy.

Epoch Partners’ Mark Langner said that the shift is the right move for Level 3.

“They need to go where the customers are,” he said. “Part of that process is to stabilize revenue streams from other places than just big purchasers or bandwidth players. A lot of the business model is built up around companies offering data services as service provider.”

These announcements were accompanied by news that Level 3 is cutting revenue projections for 2001 and 2002.

Under Generally Accepted Accounting Principals (GAAP), Level 3 now expects $1.3 billion in communications revenue for 2001, down from the $1.4 billion to $1.5 billion that was previously projected. For 2002, the company expects GAAP communications revenue to be between $1.7 billion and $1.8 billion, down from early projections of $2.3 billion to $2.5 billion.

But the company expects its second quarter performance to be “substantially in line with our previous second-quarter projections.” According to the First Call/Thomson Financial, analysts project the company to post a loss per share of $1.83 for the quarter.