Alcatel Makes Cuts — Will It Help?

logoToday beleaguered telecommunication equipment maker Alcatel-Lucent (s ALU) said it would cut 2 billion euros ($2.7 billion) in costs between now and 2010. It plans to do this by laying off 1,000 managers, 5,000 contractors and cutting costs in areas such as R&D and real estate. While this move comes amid troubling signs in the telecommunications industry, such as Alcatel-Lucent’s customers cutting costs and competitors such as Nortel (s nt) trying to raise cash as it tries to figure out how to steer through the downturn, it’s also an effort to make Alcatel more nimble in a competitive environment.

The company was struggling even before the bottom dropped out of the market, and the solution here is less about job cuts and more about consolidation or eliminating some of the weaker players in the overall industry. It has to happen, especially given that Alcatel executives expect the telecommunications equipment market will decline 8-12 percent in 2009 — declines that will stress stronger players, much less weaker ones. Alcatel-Lucent will also embrace new lines of business, such as services, but the company still has its work cut out for it. The cost-cutting can buy it time, but it still needs to address the issue of being a lumbering giant in a tough market.