French telecom equipment maker Alcatel said on Thursday it will sack 12,000 workers, or 10 percent of its work force, in the next two years to shave costs.
Alcatel also said it plans to continue expanding its Internet businesses in the United States, where it just announced acquisitions of three companies with expertise in data communication.
There is a global race to develop equipment that can route any kind of information, from voice to data to video. Alcatel -- along with rivals like Motorola, Lucent Technologies, Ericcson, and Nokia -- is scrambling to keep up in the race.
"They're doing the right thing," said Jeffrey Pittsburg, an analyst with Goldis-Pittsburg Institutional Services. Alcatel's job cuts and acquisition plans should help it shed sluggish operations and get into higher growth areas of the telecom business, Pittsburg said.
Investors initially welcomed the moves. Alcatel shares jumped 5.6 percent on Europe's GMT exchange, following the announcement of the job cuts and the company's 1998 earnings. US-traded shares (ALA) rose 31 cents to US$26.13.
Alcatel said it had income of $2.7 billion in 1998, up from $835 million in 1997. The company said it expects earnings to grow at about the same rate this year.
Executives said they expect operating profit from telecommunications activities to rise by 40 percent in 1999. But the company expects a slowdown in the market for traditional phone network switches -- a big part of its product line -- to continue through the first half of the year.
The company recently spent $3 billion to buy US-based Internet companies such as Packet Engines, Xylan Corp, and Assured Access Technologies. The acquisitions, once completed, will add another 1500 employees to Alcatel's US payroll.
Alcatel said it doesn't have any immediate plans to hand out pink slips in the United States, though it may eliminate some hardware or manufacturing positions down the road. Most of the job cuts are expected to be in Europe.
