The telecoms equipment market has declined even further than expected, driving Alcatel to cut 10,000 more jobs. Alcatel believes this restructuring will take it to breakeven… but it also said that for the last one. If the market continues its decline, Alcatel may not make money until 2004. On the plus side for investors, talk of a liquidity crisis looks unjustified.
Alcatel has announced a sales warning and another 10,000 job cuts.
French telecoms equipment firm Alcatel has said it expects H2 2002 sales to be 10% lower than H1, largely due to a terrible Q3. In an attempt to make up the shortfall, the company is cutting 10,000 more jobs.
The news was no surprise, following similar recent announcements from Lucent and Nortel. It highlights how much the telecoms industry is still falling: Alcatel’s last profit warning was just three months ago. Over the course of 2002, the company will have shed 40,000 people, or 10% of its workforce.
Nor is a recovery in sight. Obviously, the telcos who are near bankrupt aren’t buying kit. Nor are the stronger companies: they’re aware of the hit their share price has taken, and the difficulty in pleasing their bankers. With second-hand assets hitting the market at firesale prices, new equipment is hard to justify.
This makes the outlook bleak for Alcatel. So far, its cost-cutting efforts have failed to keep pace with the collapse in demand; there’s no guarantee the latest move will prove any different. If demand slumps further, Alcatel will need to cut still more jobs. And demand looks likely to slump further.
Fears that Alcatel will run into serious liquidity problems are overblown. The company’s debt is a manageable E2.6 billion – still above its market capitalization, never mind its assets. Nor is it a long way from breakeven: the consensus analyst forecast for Alcatel’s 2003 revenues is E16.9 billion, and it expects costs next year of E16 billion.
Alcatel can get by on loans and asset sales until then; its stake in defense group Thales, in particular, should provide some useful cash. But the gap between forecast costs and forecast revenues is not comfortable. A worse-than-expected market, or higher-than-expected costs, could delay breakeven until 2004 – or even later.
Related research: Datamonitor, Industry Review: Telecoms – September 2002 (BFTC0771)
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