NEW YORK (Reuters) - Sprint Nextel Corp, the No. 3 U.S. mobile service provider, said it will cut up to 8,000 jobs, or about 14 percent of its workforce, including its chief information officer, as part of a plan to reduce labor costs by $1.2 billion a year.
The plan comes amid sweeping workforce reductions in the United States, including 20,000 jobs from Caterpillar Inc, 7,000 from Home Depot Inc and 6,000 at Philips Electronics NV — all announced on Monday. Last month, Sprint’s larger rival, AT&T Inc, said it would eliminate 12,000 jobs, or about 4 percent of its staff.
Sprint will take a first-quarter charge of more than $300 million for severance and related costs; it said the cuts will largely be completed by March 31. Around 850 job cuts will come from a voluntary separation plan that started late last year.
“They’re in a situation where their backs are against the wall,” said Robert W. Baird analyst Will Power, who noted that Sprint’s performance has steadily weakened and the company could face even more cuts should it continues to falter.
“They’re losing 1 million customers a quarter. Revenue is declining year over year in double digits. They had to find a way to cut costs,” he said.
Sprint, which has been working to stem customer complaints about service and network capacity, said it would terminate, without cause, the job of Kathy Walker, its chief information and network officer, effective March 31.
In the meantime, Walker will work with Steve Elfman, president of network operations, to develop a new management structure for Sprint’s network and technology operations.
Sprint shares rose 5 cents, or 2 percent, to $2.51 in afternoon trade on the New York Stock Exchange. The stock has risen about 49 percent in the past month, partly on news that it is the exclusive U.S. provider for a new touch-screen smartphone from Palm Inc.
However, the shares are still down over 70 percent from a year earlier, as the company has struggled to stem customer losses due to service problems, weak marketing and an economic downturn that hurt its poor-credit customers.
Sprint said in a statement that the cuts will affect all levels and areas of the company, though less in customer care, as part of its effort to bolster customer satisfaction.
But spokeswoman Roni Singleton noted the cuts would include an effort by Sprint to reduce the number of external employees working in customer call centers. Depending on how quickly it can reduce the number of calls customers make to Sprint, Singleton said it could close as many as 20 call centers this year as part of the cost-cutting plan.
Sprint said the cost cuts were aimed at making it “financially secure in a challenging economic environment.”
Analyst Christopher King of Stifel Nicolaus Telecom Equity Research called the job cuts aggressive.
“The business has been shrinking so quickly that it’s almost certainly the right thing for them to do,” King said. “If these costs don’t impact operational performance or their customer service metrics, it is a substantial cost savings they are laying out here.”
Sprint — criticized for overpaying its chief executive in 2007 — said in a filing with the U.S. Securities and Exchange Commission that current Chief Executive Dan Hesse would get a cash bonus of $2 million on top of his salary, if Sprint met its performance objectives for 2009.
Hesse had a base salary of $1.2 million in 2008. The company has not announced his salary levels for 2009.
The company has $600 million of debt due to be repaid in May 2009 and another $2.4 billion in 2010, but it has said it plans to avoid requiring new capital in the next two years.
Sprint said on Monday it would suspend paying 401(k) retirement matching funds and extend last year’s suspension of annual salary increases into 2009.
“Clearly, as the company has struggled operationally, it needs to align its cost structure with its current business model,” said Stanford Group analyst Michael Nelson.
“It’s a step in the right direction, but it’s certainly not going to turn around the company,” he said.
A Sprint spokesman said the company currently has 56,000 workers, after cutting 4,000 jobs in 2008.
Reporting by Franklin Paul, Paul Thomasch, Ritsuko Ando and Sinead Carew; Editing by Gerald E. McCormick and Dave Zimmerman