Alcatel to axe 5,000 jobs as battles downturn

Telecom equipment maker Alcatel-Lucent will axe 5,000 jobs and exit or restructure unprofitable markets in a drive to cut costs by €1.25bn (£967m) by the end of next year as it battles stiff competition and weak demand.

The move comes after the Franco-American group warned last week it would miss its 2012 profit margin target and announced a second-quarter adjusted operating loss of €40m.

The decision to cut 6.4 per cent of the group's global workforce of 78,000 is a sign chief executive Ben Verwaayen believes bolder action is now needed to stem a plummeting share price and perennial problems like cash burn and high costs.

However, the proposals are more limited than rival's Nokia-Siemens Networks pledge to cut one-quarter of its staff, or 17,000 jobs, and sell a raft of fixed-network product lines to focus more narrowly on mobile equipment.

Alcatel is also embarking on the plan as major telecom operators are cutting back spending on network equipment in a faltering global economy and competition with Huawei Technologies and Ericsson remains fierce.

Bernstein analyst Pierre Ferragu said the plan was not ambitious enough given the group's challenges and wouldn't solve structural issues like its too-broad product range.

"On the contrary, the layoffs proposed will cost a lot of cash and risks accelerating the company's liquidity problems. We are more than ever in a situation where Alcatel risks not being able to refinance its needs in 2014," he said.

Shares in Alcatel were the worst performers on the French blue-chip CAC 40 index in early trading, down some 7.5 per cent. Its market value is about