Alcatel cuts 1000 more jobs, slashes rev. outlook

By Catherine Bremer

PARIS: French telecom equipment giant Alcatel has announced another 1,000 job cuts at its Optronics unit as the embattled optical components maker braces for a 50 percent drop in sales this quarter. Alcatel shares plunged nine percent as the staffing cuts, coming on top of 800 jobs axed last year, were read as evidence that the crippling slowdown eating into sector revenues is still far from over.

Optronics had already unveiled a smaller headcount reduction plan in June. "Continuing recession and persistent inventories at the customers' level could result in revenue for the third quarter declining up to 50 percent sequentially," the company said.

Alcatel said the impact of the slowdown on operating profit at its fully owned optics unit should be "limited", thanks to already implemented cost-saving measures, capping the decline in its shares and bolstering tracking shares in Optronics.

"This is a pure reflection of the collapse of the underwater optical market," said BNP Paribas analyst Philippe Schmitt, who has a "neutral" rating on Alcatel and an "under-perform" rating on the wider sector. Optronics, which accounted for a third of Alcatel's second-quarter operating loss of 177 million euros, has seen orders for its high-tech optical components shrivel up as cash-strapped telecoms carriers freeze investments.

The unit's second-quarter revenues showed a drop of 83 percent on the year to 25.4 million euros. Alcatel Optronics said it would progressively cut headcount at its plants in Nozay, France and in Livingston, Scotland, to below 500 by the end of 2003 from 1,550 staff today.

Alcatel, itself cutting a colossal 30,000 jobs in a bid to claw back to profit, is under pressure in all its divisions from an industry slump which, it said in July, shows no signs of reversing in the second half of the year. Peer groups Nortel and Lucent have both scaled back their outlooks for the current quarter.

Alcatel shares at a new low

While Optronics only generates a tiny fraction of Alcatel's turnover, its parent believed when it floated Optronics tracking shares in October 2000 that optics would drive future profits. Alcatel shares, which have slid from a year high of 21.62 euros in January, accelerated their losses in late trade to end down 9.21 percent at 3.35 euros, after scraping a new year low of 3.31 euros.

"Investors are realising the optics sector is going into a drastic freefall," said SG Securities analyst Bernard Malhame. Optronics shares, which have been bashed to almost nothing since their launch two years ago at 85 euros, closed up 3.45 percent at 2.70 euros, however, as analysts welcomed the job cuts as a sign Alcatel is grasping the nettle and adapting its industrial base to the slowdown in activity.

The shares fell to a life low of 1.61 euros in July, leading to speculation parent Alcatel might delist them. "Not many people have many short-term hopes for the stock. I find it hard to understand the rise today, but its movements are never very rational," said analyst Antoine Joly at brokerage Aurel Leven, who has a "sell" rating on Optronics.

"We were expecting a decline of 30 to 50 percent (in Q3 sales) but it's hardly surprising given the state of the optics market and the rash of profit warnings for the quarter." The decrease in fixed costs should result in a quarterly break-even point of 40 million euros by end-2003, meaning that quarterly sales above 40 million should ensure profitability.

Optronics said its Nozay factory would shift its focus to making so-called "active" components, while Livingston will concentrate on the manufacture of "passive" parts. Alcatel Optronics said in June it would reduce its workforce by one quarter by year-end to 1,350 from 1,805 at end-March, incurring a charge of 60 million euros.

(Additional reporting by Tom Pfeiffer, Nathalie Meistermann)

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