Being heavy on staff yet light on sales,
looks to trim down to a level comparable to, well, the size of its archrival
Lucent's next round of cuts could exceed 10,000 employees, according to a
Wall Street Journal
story Wednesday. In total, Lucent's cuts -- including 10,000 in previously announced layoffs, 12,000 related to sales of fiber cable and manufacturing operations, and 10,000 or more through early retirement -- would reduce the staff to 62,000 from 104,000. Coincidentally, Nortel's targeted head count is 64,000.
Lucent spokespeople declined to comment on the reported job-cut plan but said that the company was on track with current reduction plans and will continue to assess the matter.
The newest plan is a wise move, say analysts who point out that both Lucent and Nortel sell approximately the same telecom gear to the same group of phone and Internet companies. As Nortel has pulled in the size of its operations by eliminating product lines and employees, Lucent's bloated cost structure has
come under renewed scrutiny.
For example, in accountant-speak, under the existing staff-cut plans, for every $1 in revenue that comes in per Lucent employee, Nortel takes in $1.24 per employee. Should Lucent cut an additional 10,000 employees, it would close that difference and lag Nortel by only 4 cents. While these comparisons can prove to be crude oversimplifications, they also tend to illustrate the basic operational differences in similar companies.
reported in April, some on Wall Street, including former
analyst Tom Lauria, had predicted that Lucent would need to try to
align its costs with its closest competitors.
"This is not a case of keeping up with the Joneses," said a Lucent spokesman, referring to the Nortel size similarities. "We are continuing to adjust the size and scope of the business to match the market conditions."
But Lucent has been wrestling through a long restructuring process that started July 20, and has yet to deliver any clear signs that it is making progress. Of course the turnaround effort has been hampered a bit by a brutal equipment-spending slowdown, the departure of several top executives, a failed merger with rival
and a credit downgrade to junk status.
Stunned investors have watched Lucent fall from its perch as the world's top network equipment maker, down to a hexed company with a $5-and-change stock and
a glaring inability to find a new CEO despite an eight-month search.
Yet there's an underlying optimism among some on Wall Street that says what doesn't kill Lucent will only make it stronger. And, as Lucent fans like to point out, the company got a head start on the retooling process before Nortel or
, and logically should emerge sooner than the others.
Oddly, both Nortel and Lucent each won three-year, $1 billion contracts Wednesday to provide
with wireless infrastructure gear. Notably, neither Lucent nor Nortel had to provide Sprint any financing to win the deal. Lucent and Nortel have handed out billions in loans to customers, effectively financing their own sales, which has proven to be a costly risk as some borrowers start to fail.
Toning down the vendor financing was among the early steps in Lucent's rebuilding plan, but like many of the early steps, it's still not clear whether the moves were enough.
"I'm not surprised that they would be considering more cuts once the voluntary retirements are finished," says
Steve Levy, who has a hold rating on Lucent. "In fact, it confirms my view that the company is acting with a greater sense of urgency ever since the merger with Alcatel fell through." (Lehman hasn't done underwriting for Lucent.)
To be sure, aping Nortel's staff cuts might be an obvious strategy, but at least trying to stay in tandem with the competition shows you're still in the game.