Avaya laying off 2,500 workers in restructuring

For the third time since June 2001, networking company Avaya Inc. is undergoing a financial restructuring as it works to cope with the stagnant IT economy.

In an announcement today, Avaya said it will cut 2,500 jobs and take a restructuring charge of about $150 million in its fiscal fourth quarter ending Sept. 30. About $68 million of the charge will cover the costs of the 2,500 layoffs, while about $65 million will pay for consolidation of facilities and lease terminations. About $15 million will pay for other costs.

The restructuring will begin immediately, according to Lynn Newman, a spokeswoman for the Basking Ridge, N.J.-based company, which was created after being spun off of Lucent Technologies Inc.

Avaya also conducted restructurings in March and last summer, Newman said, as the company tried to cut costs to match revenue during the challenging economic times that have affected much of the IT industry. The problem, she said, is that customers have cut or delayed their IT spending, and IT vendors are continuing to feel the effects.

"It's been a tough year or so," Newman said.

About 21,600 people work for Avaya today, meaning the company will have about 19,000 workers after the latest layoffs take effect. The restructuring will save the business about $300 million in this fiscal year.

Last week, Avaya warned of the upcoming restructuring and layoffs when it presented its results for its third fiscal quarter, which ended June 30 (see story). The company posted a $37 million net loss, compared with net income of $24 million for the same period in 2001.

Third-quarter revenue fell to $1.22 billion, nearly 29% less than the $1.71 billion it posted in the third quarter of 2001.

Jeff Kagan, an independent telecommunications industry analyst in Atlanta, said Avaya isn't alone in facing troubles caused by the slow economy. "They're all under the same pressure," Kagan said of technology companies. "The cuts in capital spending [from customers] -- that hasn't changed, and we're not out of the woods yet."

"Now it's a matter of survival" for vendors like Avaya until businesses start spending IT dollars again, he said. "The bad part is, real people are involved" and are being laid off. "It's not good for everybody."

Lucent posted its ninth consecutive quarterly loss last week and announced a layoff of another 7,000 employees in a continuing effort to curtail costs.

The Murray Hill, N.J.-based telecommunications equipment maker reported a net loss of $7.91 billion for its third fiscal quarter ended June 30, compared with a $3.24 billion net loss in the same period a year ago.

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