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AT&T Planning Big Write-Off, 27,400 Job Cut

December 19, 1986|PAUL RICHTER | Times Staff Writer

NEW YORK — American Telephone & Telegraph Co., still struggling to adapt to the rigors of a deregulated world, said Thursday that it will cut up to 27,400 jobs over the next year and write off $3.2 billion in the fourth quarter.

The cutbacks mean that AT&T--for decades a haven of job security for American workers--will have eliminated 80,000 jobs, or a fifth or its work force, since it was severed from the 22 Bell System telephone operating companies in January, 1984. Most of the jobs being lost in the latest round will be eliminated by layoffs, AT&T said.

AT&T officers could not estimate how many jobs will be lost in Southern California, but they said the 8.5% work force reduction will be imposed proportionally across the country. That suggests a loss of more than 600 of the 7,400 AT&T jobs in Southern California and of more than 1,600 of the 19,600-position statewide payroll.

The charge against AT&T's fourth-quarter profit is expected to leave the company with a quarterly loss of about $1.2 billion and a yearly profit of less than $100 million on $34 billion in revenues, analysts estimated. The $3.2-billion pretax charge is among the largest in corporate history, analysts said, although smaller than the $5-billion charge taken by AT&T in December, 1983, as it prepared for divestiture.

At a press conference here, AT&T Chairman James E. Olson said the layoffs and restructuring would yield a company "in far better financial and operating shape." But he added that the positive effects of the changes will not begin improving the company's profit columns until 1988.

Disappoints Wall Street

The news disappointed many on Wall Street, who for three years have waited for an earnings turnaround that now has receded ever further into the future. AT&T's stock fell $1.125 a share to $26.25 and was the most heavily traded issue on the New York Stock Exchange, with more than 4 million shares sold.

The announcement illustrated again that life after divestiture has proved far more difficult than AT&T executives had expected. AT&T has tried to maintain dominance in long-distance telephone service, while developing a stream of products in data and voice communications and in computer equipment and software that would put the company at the center of a vast worldwide information network.

Indeed, AT&T is still dominant in long-distance service and continues to profit handsomely in sales of big telephone exchanges--"central office switches"--to telephone operating companies. But profits AT&T has earned on the rental of telephone switching equipment have declined steadily, in many cases as customers have replaced leased gear with equipment they bought from Canadian, European, Japanese and Korean competitors.

Soft Computer Business

And AT&T has been hit by losses in sales of other products, including computers and phone switchboards, called private branch exchanges, that businesses and government agencies install in their buildings. AT&T's difficulties have been heightened by a softening of the computer business.

Analysts estimate that losses on sales of computer and phone equipment will cost the company about $570 million this year.

AT&T executives sought to emphasize that they are not about to abandon their computer business, despite often-heard predictions to that effect. "This announcement does not mean that we are on the verge of pulling out of any major market segment," Olson said.

Although AT&T did not specify which positions would be most affected by the job cutbacks, spokesmen said many were support positions, such as clerical jobs, that have become duplicative as the company has combined various units.

Third Round of Cuts

This year, for example, the company has merged AT&T Communications, the long-distance unit, with AT&T Information Systems, which sells computer and telephone equipment.

The work force cuts will be the third round AT&T has announced since divestiture. In the two earlier cutbacks, 53,000 jobs were eliminated, including 30,000 layoffs.

An additional 23,000 jobs were eliminated through attrition--by not filling positions after retirements and voluntary departures.

About $1 billion of the $3.2-billion charge in the quarter ending Dec. 31 will be spent on severance payments to employees and other staff-reduction costs. An additional $1.2 billion will be spent on consolidating and streamlining factories, and the remaining $1 billion on write-offs of assets and inventory and changing depreciation rules, AT&T said.

Doesn't Name Plants

Spokesmen would not specify which plants are most likely to see major job reductions.

AT&T executives said the jobs that will be eliminated have been identified as "surplus." Other positions that become vacant in the months ahead due to normal attrition will be filled, officials said.

They said news of the work force cuts had already been broken to more than a third of the employees who will lose their jobs. According to Olson, managers hold 10,900--about 40%--of the positions that will be eliminated.

The ranks of AT&T's senior management have declined to 125 executives, from 180 at divestiture.

Last year, AT&T earned $1.56 billion on revenues of $34.9 billion, which compared to profits of $1.37 billion on revenues of $33.2 billion in 1984.

Painful Contrast

The company's slow growth has been painfully contrasted with the prosperity of Ma Bell's progeny, the regional telephone operating companies. As AT&T has struggled, they have become Wall Street favorites by cutting costs and outperforming profit expectations, noted Marianne Bye, analyst with Mabon, Nugent & Co., a New York investment firm.

"Everybody's been expecting AT&T to turn the corner, too, but every year it keeps getting pushed back further," she said.

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