Updated from Oct. 7
The ax is swinging again at
The struggling telco said late Thursday it would slash its workforce and take a big asset writedown, confirming reports by
over the past week. AT&T's decision represents its latest effort to revive its flagging fortunes as the telecom industry grows ever more cutthroat.
In premarket action Friday, AT&T rose 38 cents to $15.42. The stock is down more than 25% this year, having touched an all-time low in August.
The Bedminster, N.J., company said late Thursday it would cut 20% of its staff during 2004 in an effort to reduce costs. That move, which will result in the firing this year of some 12,000 workers, will be accompanied by a $1.1 billion restructuring charge.
AT&T said some three-quarters of affected workers have already been told or have departed. The company earlier this year said it aimed to reduce employment by 8% over the course of 2004. AT&T ended 2003 with some 60,000 workers.
AT&T also said Thursday it would write down the value of its balance sheet by a staggering $11.4 billion. The company said the move reflects continued industry pricing pressure and a move to new technologies.
"In response to recent regulatory developments and a highly competitive market, we have made some tough decisions to reduce our workforce and cut costs," said CEO Dave Dorman. "Ongoing investments in our network and systems around the world have allowed us to significantly improve customer-service metrics while driving industry-leading productivity."
reported last week that the company would slash as many as 15,000 jobs in a restructuring widely awaited on Wall Street. The anticipation only grew after Dorman
canceled an appearance at a Goldman Sachs communications conference.
Given the numerous pitfalls AT&T has stumbled into this year, some industry analysts and investors had speculated that Dorman's job wasn't secure. But AT&T representatives have adamantly insisted that Dorman isn't leaving, and the executive's comments in Thursday's press release indicate he remains in control for now.
The cutback strategy at AT&T is far from unprecedented. In 1998, AT&T's cost-cutting strategy began in earnest, as 15,300 workers were lured off the payroll with generous early retirement packages. In 2001, the company cut another 10,000 workers, bringing its total staff count below 120,000.
Since then the cuts have only accelerated, though the company has grown
less apt to advertise its decisions. The company has also sold off various units, as with its disastrous foray into cable, which AT&T washed its hands of with a late-2002 sale to
Persistent cuts have become a seemingly permanent condition in telecom over the past three years, as the industry continues to suffer from an oversupply of capacity and service providers. Shifting technology trends have also undercut the old-line players as voice-over-the-Internet and wireless calling gain popularity.
But by far the biggest victims have been AT&T and
, which were hit earlier this year by unfavorable federal network pricing rules. That decision hurt the companies at the expense of their rivals, the Baby Bells --
AT&T indicated Thursday that its slimming push is helping its bottom line. AT&T said it expects "a significant improvement in consumer operating margin, excluding restructuring charges, in the third quarter of 2004 when compared with the second quarter of 2004." The company also said it expects to generate cash flow in line with 2004 guidance, adding that it is "evaluating further uses of surplus cash flow as it nears the completion of its 2004 debt-buyback program."