Updated from 3:10 a.m. EST

Alcatel-Lucent

(ALU)

expects to reduce its managers by about 1,000 and contractors by about 5,000 as it shifts investments towards next-generation platforms.

Alcatel-Lucent said Friday it plans to "undergo a major strategic transformation and will take some significant steps to realign its operations." The company said it plans to focus on the markets of service providers, enterprises, and selected verticals and make targeted investment in certain areas.

The company said it aims to reduce its breakeven point by 1 billion euros a year in both 2009 and 2010 as it seeks gross margin improvements by reducing its manufacturing, supply chain and procurement costs, and introduces stricter pricing.

Alcatel-Lucent forecasts the market for telecommunications equipment in 2009 to be down between 8% and 12%, and expects to maintain a stable market share.

The company said its initial forecast is for adjusted operating profit about breakeven in 2009 because of the expected decline in volumes and because gross-margin improvements won't materialize until the end of the year.

Alcatel-Lucent hasn't made a profit since the company was formed through Alcatel SA's purchase of Lucent Technologies for $11.4 billion in 2006.

CEO Ben Verwaayen, who took over in September following the removal of Patricia Russo, said the cuts would make Alcatel-Lucent a "more agile" company by stripping out layers of management.

Speaking on a conference call with reporters, newly appointed Chief Financial Officer Paul Tufano warned that 2009 would be a "challenging year" but that the measures announced Friday would give the company "substantial momentum going into 2010." Neither executive would say when the company would make a net profit.

The new job cuts come on top of Alcatel-Lucent's previous plan which calls for the elimination by the end of next year of 16,500 jobs out of a total work force at the end of 2007 of 76,410.

Verwaayen said Alcatel-Lucent will shift investment to technologies in which it is either already a leader or which it has targeted for development, such as LTE, W-CDMA, and enhanced packet core. The company also will cut its offerings in aging technologies such as CDMA, GSM and ADSL.

Verwaayen said the ensemble of measures amounted to "a new purpose for the company" in helping telecom service providers and corporate clients reap better value and benefit from changes in the Internet.

As part of its transformation, Alcatel-Lucent also plans to sell its nearly 21% stake in defense contractor

Thales

. Last month the company said it was in exclusive talks with France's Dassault Aviation on a sale of the stake for 38 euros a share.

Verwaayen said Friday Alcatel-Lucent was "making progress" on the sale and that the negotiations were running smoothly.

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