Jun 28, 2001
''Our priority isn't in manufacturing,'' Tchuruk told reporters at Alcatel's Paris headquarters. The company, which had about 120 plants worldwide five years ago, plans to reduce that number to a dozen or fewer, Tchuruk said.
Since 1995, when Tchuruk took over, Alcatel has focused on making equipment for phone companies and has sold businesses that made products such as batteries and trains. Alcatel, which is farming out its mobile phone production and selling some consumer electronics businesses, expects a loss in the second quarter.
''They're taking advantage of the fact they're facing a crisis to streamline their business,'' said Antoine Joly, an analyst at Aurel-Leven who rates the shares ''accumulate.''
Europe's number four phone equipment maker, like most of its rivals, has seen sales growth slow this year as phone and Internet companies trim spending. Tchuruk will take a 3 billion-euro ($2.6 billion) charge this quarter to reorganize Alcatel's business, leading to its first loss since 1995.
''Outsourcing of our production will affect about 10 percent of our global work force,'' said Klaus Wustrack, a spokesman for Alcatel. The company has 110,000 workers, including some 28,000 in research and development. The company wouldn't say which plants will be sold or whether any workers will lose their jobs. Alcatel plans to sell some factories to contract manufacturers who will keep making products for Alcatel, Tchuruk said. The company also plans to hold onto plants making undersea networks, satellites, and optical equipment.
''Our business today is an R&D business,'' said Tchuruk, who added that these shifts have been underway at the company for years. ''It's a long process.''
Tchuruk declined to give a timing for the plant sales. He said he would first tell Alcatel's workers of any plans to sell or close factories.
''This highlights how bad the telecommunications market is right now,'' said Philippe Lecoq, who helps manage about 1 billion euros at Ofivalmo Gestion, including Alcatel shares. ''Nine months ago, Tchuruk was saying everything was fine. One year on, he's been proved wrong.''
Potential buyers for Alcatel's factories include Solectron Corp., Celestica Inc. and Flextronics International Ltd., analysts said.
Alcatel shares are the worst-performing on Paris's benchmark CAC 40 index this year. They rose 26 cents, or 1.1 percent, to 23.03 euros, valuing the company at 27.9 billion euros. The CAC index had dropped 15 percent this year.
Alcatel's American depositary receipts fell 44 cents, or 2.2 percent, to $19.54. They are down 65 percent this year.
In April, Alcatel said it would transfer mobile phone production to Flextronics to stem losses at the handset unit. Earlier this month, the company agreed to sell its rapid-Internet modem unit to Thomson Multimedia SA for 456 million euros.
Alcatel also sold its cable unit in an initial public offering this month.
Yesterday, Alcatel offered buyouts to 9,000 US workers to try to trim costs. This year, Alcatel has eliminated 2,000 jobs in the United States, which now accounts for 7 percent of its work force. Its rivals, including Nortel Networks Corp. and Cisco Systems Inc., have also reduced their payrolls by thousands of people.
''Alcatel has lagged rivals in restructuring its businesses,'' said Aurel-Leven's Joly.
Tchuruk is narrowing Alcatel's business, betting optical equipment, phone networks, and space technology will show the most growth as demand for faster data and video transmission picks up. The plan to sell most of Alcatel's factories is not the first time that the former oil executive has applied drastic methods in the face of flagging sales.
