AT&T launches cutbacks

September 16, 1995|By Bloomberg Business News

NEW YORK -- AT&T Corp. has begun eliminating jobs in a restructuring of its money-losing computer unit that could reach 10,000 jobs.

The restructuring will lead to a $1.2 billion charge in the third quarter, according to analysts and a published report. The job cuts would amount to more than 20 percent of the Global Information Solutions Inc. unit's work force.

The ailing computer unit, formerly NCR Corp., has been bleeding money since AT&T bought it for $7.4 billion in 1990. The unit lost $332 million in the first half of the year as the company faced stiff competition.

"This is a classic example of an acquisition gone wrong," said Craig Ellis, an analyst at Wheat First Butcher Singer.

AT&T, which started the restructuring in July, is expected to announce definitive job cuts next week for the unit.

Analysts said the restructuring could lead to the sale or spinoff of all or parts of the unit.

Company officials refused to confirm or deny the report, published in the Wall Street Journal.

"We said on July 28 that we would provide details of the restructuring of [the unit] by the end of September, and we are still on track to do that," said Mark Siegel, an AT&T spokesman.

AT&T shares closed yesterday at $58.25, up 87.5 cents.

In July, AT&T said it would restructure the unit, called GIS, into six businesses in an effort to make it profitable amid the mounting losses. The unit's new head, Lars Nyberg, is the fourth to run GIS since 1990.

AT&T's plan to marry telecommunications and computers suffered from intense competition in the computer market, dominated by International Business Machines Corp. and Hewlett-Packard Co.

The unit has 42,800 employees in 120 countries. The Wall Street Journal said GIS will take the $1.2 billion charge in the third quarter as a result of the cuts.

Analysts said NCR's strength was in making big computers, a market that isn't growing as fast as personal computers, but the company has yet to adjust to the industry shift.

Investors said AT&T bit off more than it could chew with NCR.

And, analysts reiterated what they have said before -- that AT&T will probably try to spin off or sell certain parts of GIS.

GIS is still losing more than $50 million a month, as buyers of large computers have delayed orders in light of the GIS turmoil, Richard Klugman, analyst at PaineWebber Inc., said in a research report today.

He said he expects AT&T "to sell or close down all or parts of the business in 1996."

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