Lucent announces steep cutbacks

[An anonymous e-mail making the rounds…]

Lucent will reduce its workforce by an unprecedented 120 percent by the end of 2001, believed to be the first time a major corporation has laid off more employees than it actually has. Lucent stock soared more than 12 points on the news.

The reduction decision, announced Wednesday, came after a year-long internal review of cost-cutting procedures, said Lucent Chairman Henry Schacht. The initial reportconcluded the company would save $1.2 billion by eliminating 20 percent of its 108,000 employees.

From there, said Schacht, “it didn’t take a genius to figure out that if we cut 40 percent of our workforce, we’d save $2.4 billion, and if we cut 100 percent of our workforce, we’d save $6 billion. But then we thought, why stop there? Let’s cut another 20 percent and save $7 billion. “We believe in increasing shareholder value, and we believe that by decreasing expenditures, we enhance our competitive cost position and our bottom line,” he added.

Lucent plans to achieve the 100 percent internal reduction through layoffs, attrition and early retirement packages. To achieve the 20 percent in external reductions, the company plans to involuntarily downsize 22,000 non-Lucent employees who presently work for other companies. “We pretty much picked them out of a hat,” said Schacht.

Among firms Lucent has picked as “External Reduction Targets,” or ERTs, are Quaker Oats, AMR Corporation, parent of American Airlines, Callaway Golf, and Charles Schwab & Co. Lucent’s plan presents a “win-win” for the company and ERTs, said Schacht, as any savings by ERTs would be passed on to Lucent, while the ERTs themselves would benefit by the increase in stock price that usually accompanies personnel cutback announcements. “We’re also hoping that since, over the years, we’ve been really helpful to a lot of companies, they’ll do this for us kind of as a favor,” said Schacht.

Legally, pink slips sent out by Lucent would have no standing at ERTs unless those companies agreed. While executives at ERTs declined to commment, employees at those companies said they were not inclined to cooperate.

“This is ridiculous. I don’t work for Lucent. They can’t fire me,” said Kaili Blackburn, a flight attendant with American Airlines. Reactions like that, replied Schacht, “are not very sporting.”

Inspiration for Lucent’s plan came from previous cutback initiatives, said company officials. In January of 1998, for instance, the company announced it would trim 18,000 jobs over two years. However, just a year later, Lucent said it had already reached its quota. “We were quite surprised at the number of employees willing to leave Lucent in such a hurry, and we decided to build on that,” Schacht said.

Analysts credited Schacht’s short-term vision, noting that the announcement had the desired effect of immediately increasing Lucent’s share value. However, the long-term ramifications could be detrimental, said Bear Stearns analyst Beldon McInty.

“It’s a little early to tell, but by eliminating all its employees, Lucent may jeopardize its market position and could, at least theoretically, cease to exist,” said McInty. Schacht, however, urged patience: “To my knowledge, this hasn’t been done before, so let’s just wait and see what happens.”