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  1. Technology
March 29, 1996

ALCATEL-ALSTHOM GOES FOR THE BIG ONE, RACKS UP THE BIGGEST LOSS – AT $5,100m – IN FRENCH HISTORY

By CBR Staff Writer

No one can accuse new Alcatel-Alsthom SA chief executive Serge Tchuruk of pulling any punches. He certainly wasn’t joking when he predicted a net loss for 1995 at the company’s first-half results announcement last September: Alcatel announced the biggest corporate loss in French history yesterday, of $5,100m. The situation is worrisome, with the most problematic items being telecommunications and European subsidiaries, the chief executive said at the time. I can see no real encouraging signs for the rest of the year, so we are very cautious about what our year-end results will be. The loss, on revenues of $32,100m, compares with a $720m profit in 1994, on revenues of $33,500m. On a like-for-like basis, revenues were down 3.4%. Tchuruk said in September that the company would write off between $2,000m and $2,400m in assets in 1995, in addition to the restructuring. He was close to the mark on write-downs, which totaled $2,700m. Alcatel said the higher sum reflected the change in market prospects for several companies acquired by the group. The write-down was matched by restructuring charges of $2,680m. The chief executive said Alcatel had shed 12,000 jobs since last July, 7,500 of them in telecommunications and 4,500 in its cable business, which the company announced would be merged with the parent in an one-for-one share swap. Europe suffered disproportionately in the cuts, with 10,000 jobs going to North America’s 1,400. The telecommunications segment recorded a loss before finance charges of some $660m, which included a non- recurring operating charge of about $300m. Alcatel said two thirds of the decrease resulted from the network systems business, which experience another drop in prices, and a decline in exports to China. The remainder was due to an evolution of business systems, and radio transmission activities, which saw a slowdown in Italy, Spain and Brazil. Bright spots were its transmission business, mobile communications and space.

Non-core assets

Transmission sales marked a significant advance, with sales in the US at Alcatel Network Systems, for example, up 23%. The company said it consolidated its position in the world Groupe Speciale Mobile market at 10%, and scored some important contracts in Asia in the beginning of this year. Sales in its space division increased 50% in 1995 and will do the same in 1996, the company said. Through reorganization, strategic alliances and targeted acquisitions, Tchuruk said he hopes to break even in 1996, and to return to profitability in 1998. He reiterated his intent to attain the company’s objective of $1,400m in operational cost savings by 1998. Restructuring will affect largely the telecommunications and cable divisions, which will include rationalizing their research and development and manufacturing, enhancing productivity and streamlining their administrative structures. To raise cash for strategic acquisitions, Tchuruk said he aims to raise about $2,000m from asset sales this year. He said negotiations are under way to sell various non-core assets, including its Rediffusion Swiss cable network, its stake in Cofira, the holding company of France’s second-largest mobile communications company Societe Francaise de Radiotelephone SA, other financial participations and its Bordeaux vineyards. Already, he said, the group has raised $100m from the sale of copper cables in the US and $240m from the sale of equity stakes in other companies. Recent strategic alliances include the one with Sharp Corp, for mobile communication terminals, and between Siemens AG and GEC Alsthom SA for joint marketing of high-speed trains outside Europe and the US. As for acquisition candidates, Tchuruk allowed that Alcatel was interested in the activities of Thomson SA to strengthen its core telecommunications and electronics business. Thomson will be privatized… it is clear looking at the complementarity of their businesses and ours that we will look at the prospectus when it is presented, he said, adding that he nevertheless does not have a fixation about Th

omson. The shares took the vast loss in their stride, falling just 0.81% to 431.1 francs.

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