Siemens, Alcatel act on telecoms slowdown

Siemens' handset division is now making a loss

Further evidence of the difficulties facing European telecoms equipment and mobile phone makers emerged on Thursday when Germany's Siemens said it would cut 3,500 jobs as part of a restructuring.

France's Alcatel decided to follow the lead of Swedish rival Ericsson, saying it would outsource handset production.

The mobile handset market is in crisis in Europe. It has cost us 150m euros in the first quarter

Jean-Pierre Halbron, Alcatel chief executive

Telecoms firms are struggling to adjust to a substantial slowdown in technology and telecoms spending by corporate customers and individuals.

The US economic slowdown, which some firms have reported has spread to Europe, has dampened spending by companies while European mobile phone markets are reaching saturation levels after several years of rapid growth.

Savings wanted

The slowdown in demand for new mobile phone handsets - also caused by delays in introducing new technology and doubts about its benefits - has hit the makers hard.

Siemens, which has aggressively and successfully pushed for greater market share, said its mobile phone business made a loss in the first three months of this year.

Siemens: Jan-Mar 2001

Sales 20.6bn euros, +8%

Net profit 578m euros, -11%

Chief executive Heinrich von Pierer said he now wanted the division to deliver 600m euros ($538m; £374m) in cost savings in the following quarter.

Profits in the mobile communications division were sharply lower at 6m euros (down from 287m euros a year earlier) as mobile networks earnings offset handset sales weakness.

The 3,500 job cuts announced are in addition to 2,600 layoffs already announced at Siemens' mobile handset division.

The new cuts are mainly marketing jobs in the corporate networks division, with 40% of the cuts falling in Germany and most of the rest in the United States.

Siemens mobile handset sales

Jan-Mar 01, 6.9 million

Oct-Dec 00, 9.3 million

Overtaken Ericsson to be third worldwide behind Nokia and Motorola

Results from Siemens' semiconductor spinoff, Infineon, were also under pressure.

Excluding their effects, Siemens' overall net profit rose 9% to 562m euros. With Infineon, net profit was 11% down at 578m euros.

The better performing segments were power generation, medical technology and transport.

Shares down

"I have directed all of our groups to adjust their operating plans to the ongoing difficult market environment and to counteract its effects with further measures," Mr von Pierer said in a statement.

He declined to give any forecasts for Siemens' performance over the next two quarters.

Investors were not impressed.

"The guidance of Siemens is not what the markets wanted. We got defensive guidance and some black spots," said Boris Boehm, fund manager at Nordinvest.

The shares lost 4.6% to 121.4 euros in morning trade in Frankfurt.

Alcatel trims forecasts

Alcatel downgraded its expectations for 2001 sales to growth of 5-15% having earlier predicted 20-25% growth.

It said that because of slower growth it had decided to outsource mobile phone production to Singapore-based Flextronics - the same company to which Ericsson recently agreed to transfer its handset manufacturing.

Alcatel, Jan-Mar 2001

Operating profit 118m euros, +4%

Sales 7.4bn euros, +21%

Net profit 210m euros, -19%

"The mobile handset market is in crisis in Europe. This has cost us something like 150m euros in the first quarter of 2001," Alcatel chief executive Jean-Pierre Halbron said in a conference call.

Despite this, operating profit and sales came in towards the top of analyst expectations.

The shares rose in morning trade in Paris, putting on 2.2% to 33 euros.

Looking ahead, Mr Halbron said the unfavourable US economic context was continuing.

"In Europe, even while demand for broadband access and carrier networking should remain robust, we are beginning to see some localised pockets of slowing growth."

He said Alcatel planned to cut costs by $1bn a year and reduce working capital by the same amount.

The company is seen as less exposed to the US market than some of its rivals and mobile handsets - where sales are slowly substantially - account for only about 5% of its overall sales.