As Lucent Technologies Inc Chief Executive Henry Schacht jetted back and forth across the Atlantic in April and May to negotiate a merger with France's Alcatel SA, dozens of employees at a company plant in North Andover, Massachusetts, were crocheting or playing cards.
They were killing time, waiting to learn who among them would be fired.
Lucent had put its entire workforce of 106,500 on notice in January, when it announced plans to eliminate 10,000 jobs in six weeks to help halt the company's long slide.
In April, Lucent said that 800 positions at the factory 50km north of Boston would be part of the reductions.
``Work was getting really slow,'' says Paula Bianco, an electronics assembler at the factory who'd been advised to expect a pink slip. ``A lot of people sat around doing nothing. It was ridiculous.'' Bianco and 889 co-workers in North Andover finally got the bad news on June 1. By then, any hope of a quick solution to Lucent's woes had evaporated with the May 28 collapse of the Alcatel deal, following disagreements over representation on the post-merger board.
Without the merger, Schacht was left scrambling to get back on schedule with his promised cutbacks -- and to proceed with a second round that he says he began to plan for back in March. Once that round has become mostly complete by next January, Schacht will have shrunk the company by half in hope of emerging with a business that can operate profitably.
``A lot of things that might have been done earlier didn't get done until after the discussions stopped,'' Motorola Inc CEO Chris Galvin said during a July 31 analyst meeting. ``It set back their plans.'' Lucent has scheduled an analyst briefing of its own later today so Schacht can review the restructuring program and discuss the company's outlook.
Whatever he says, Lucent is a shadow of the company that so beguiled investors with its IPO in April 1996 and then beat earnings estimates 15 quarters in a row.
Lucent began to stumble in January 2000, when it announced that profit for the preceding quarter would fall short of expectations. Its biggest problem: The company had fallen behind Nortel Networks Corp and Cisco Systems Inc in developing new products.
Lucent's shares, which had reached a record US$79.58 in December 1999, traded as low as US$5.04 on June 20. The company's stock closed at US$6.68 on Aug. 22.
In its fiscal third quarter that ended June 30, Lucent had a loss from operations of US$1.89 billion on sales of US$5.82 billion, down 22 percent from a year earlier, when the company made US$776 million.
The months Schacht and his lieutenants spent on the Alcatel deal were crucial. Because they focused on the merger, the company fell behind in its cost cutting.
It also postponed asset sales and measures to streamline the product line, which had too many slow-selling and unprofitable models. The company put off plans for a second round of cuts as well.
``Clearly, the Alcatel discussions slowed us up somewhat,'' says Executive Vice President of Corporate Strategy Bill O'Shea. ``Time is money.'' One costly example: In March, when Lucent put its optical-fiber-manufacturing unit on the block, it drew offers as high as US$9 billion, according to a person familiar with the bids.
Schacht put negotiations with potential buyers on hold pending the outcome of the Alcatel talks. By July, when Furukawa Electric Co, Corning Inc and CommScope Inc agreed to acquire the fiber business, the price had dropped to US$2.75 billion, reflecting the declining value of fiber-optic companies in the wake of falling demand from telecommunications carriers.
RSS