HR Restructuring at Lucent Technologies

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Case Details:

Case Code : HROB055
Case Length : 11 Pages
Period : 1998-2004
Pub Date : 2004
Teaching Note :Not Available
Organization : Lucent Technologies
Industry : Telecom
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Management Reshuffling at Lucent Contd...

The company appointed Henry Schacht (Schacht), chairman of Avaya Inc. (a Lucent spin-off), who had also been Lucent's first CEO, as the interim CEO. Together with this announcement, Lucent also reported a drop in net earnings to $600 million (mn) during the fourth quarter ended September 30, 2000, from $768 mn reported for the corresponding period in 1999. At this time, Lucent's stock price had fallen to about $20 per share.

In a statement, Schacht said that Lucent executives were 'clearly disappointed' by the company's financial performance in fiscal 2000.

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He added that fiscal 2001 was shaping up to be 'a transition and rebuilding year for Lucent,' as the management planned to embark on a major restructuring exercise.

However, analysts commented that it would not be easy for Lucent to turn itself around, given its weak financial position and the continuing slump in the telecommunications industry, which had begun in early 2000.

Lucent - Growth & Problems

In September 1995, US-based telecom giant AT&T (See Exhibit III for history of AT&T) announced that it would be restructuring itself into three separate companies - a services company, retaining the AT&T name; a products and systems company (later named Lucent Technologies); and a computer company (which assumed the name: NCR).

In February 1996, AT&T began implementing plans to divest Lucent off into a separate company. It began transferring to Lucent the assets and liabilities related to its business. As part of its decision to become a public traded company, on April 5, 1996, Lucent issued its initial public offering (IPO) of 112,037,037 shares (17.6% of common stock) at a price of $7 per share. AT&T, which held the remaining 82.4% of the common stock, announced that it would divest its ownership interest in Lucent by December 31, 1996. Bell Laboratories, the R&D division of AT&T, which developed telecom technologies, became part of Lucent during the divestiture.

At the time it was spun off, Lucent was already a major player in many businesses - mobility, data, optical and voice networking technologies, professional network designs and consulting services, web-based enterprise solutions which linked public and private networks, and optoelectronics and communications semiconductors.

In 1996, the growing popularity of the Internet as a communication media fueled the demand for more than one phone line, boosting Lucent's equipment sales.

By 1997, Lucent was the leading telecom equipment maker and was lauded as one of the biggest success stories of the 1990s. Lucent began to capture the market shares of its major competitors in the equipment business, namely Motorola and Nortel Networks.

However, in the late 1990s, the data traffic business was growing more rapidly than the voice traffic business. As the Internet and data traffic businesses gained ground, Lucent lost its competitive advantage in its core business of telecom equipment supporting voice traffic...

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