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Sprint Nextel chops 8,000 workers

Caterpillar sees Sprint, raises to 20,000 layoffs

When the big banks in the US needed a bailout, Congress had very little trouble coming up with $700bn rescue funds; but when the rest of the economy is waiting for a little stimulus and a new president has the political capital and the need to push through a broad infrastructure improvement spending package, members of Congress are either dragging their heels or stomping their feet.

And in the meantime, US employers are revving the layoff chainsaws, making everything worse in the long run.

Layoffs have hit at beleaguered wireless telecom company Sprint Nextel, which has taken some big financial hits from its $35bn acquisition of Nextel back at the end of 2004. Back then, the idea was to create a $40bn telecom giant and shave some $12bn in network costs out of the combined firms. While Sprint Nextel was able to attain that revenue level in 2006 and 2007, the company had to write off most of its Nextel acquisition in 2007, and sales are down in 2008 and the company is not profitable.

Sprint Nextel announced this morning before Wall Street opened for business that it was cutting about 8,000 employees, or around 13 per cent of its 61,500 workforce in order to cut around $1.2bn of labor costs. The telecom giant says it expects to have most of the layoffs completed by March 31, and that the 8,000 layoffs include 850 voluntary reductions that were announced late in 2008.

Sprint also said that in an effort to save money, in 2009 it will suspend 401(k) matching funds for employees, extend a salary freeze that went in effect in 2008 through 2009, and kill tuition reimbursement plans for employees this year. Sprint Nextel says it will book a charge in excess of $300m to cover the layoffs, and moved its reporting of its fourth quarter financial results ahead to February 19.

The company also reminded Wall Street that it had repaid $2bn in debt last year and renegotiated its credit facilities with its banks so it can continue rolling its debts. (I guess some of that bank bailout will be put to good use after all.) At the end of the September 2008 quarter, Sprint Nextel had $4.2bn in cash and equivalents, but had $21bn in long-term debt. This is an immense amount of debt for any corporation to shoulder.

The cuts at Sprint Nextel are, thus far, much deeper than at rival AT&T, which said it was cutting 12,000 jobs - about four per cent of its workforce - last fall when the economy soured.

On the other end of infrastructure, digging in the dirt instead of supporting wireless phone calls, heavy equipment maker Caterpillar also announced this morning that it was slashing 20,000 jobs, about 18 per cent of its 112,000 workforce, as sales went choppy as 2008 came to an end. Caterpillar reported its fourth quarter financials this morning, and said that sales were $12.9bn, up 6.4 per cent, but profits came in at $661m, down 32.2 per cent.

As the global construction boom took off and kept booming for the past decade, Caterpillar's workforce has grown by nearly 50 per cent, and given a steep drop in construction and infrastructure projects as the global economies have weakened, it is no wonder that Caterpillar has to cut back as it braces for worse times ahead in 2009.

Caterpillar already said back in December that executive compensation at the company would be cut by up to 50 per cent this year and that senior managers would see their pay cut by anywhere from five to 35 per cent this year as the company tries to rein in costs. Caterpillar had already instituted cuts in incentive and equity compensation for other managers and support staff before December. Managers and support staff who work for Cat in the United States were offered voluntary separation programs, which were available until January 12.

The cuts announced today were deep because of the uncertainty in the heavy equipment markets in which Cat participates. That's 20,000 people who are probably not going to be upgrading their PCs or buying new ones for their kids this year, and forget about a Zune or iPhone. It all feeds back into IT, eventually. ®

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