Global slump cuts Ascom down to size

Ascom is just one of many Swiss firms "going back to basics" after many years of growth Keystone Archive

The Swiss technology group, Ascom, is one of growing number of companies forced to scale back their operations after the boom years of the late 1990s.

Ascom announced on Friday that it intends to sell off more businesses in a move which would reduce the company’s sales by half.

The debt-strapped telecoms technology group said it plans to reposition itself as a “niche” player.

4,000 jobs threatened

It added that the planned divestments would leave it with a medium-term sales target of SFr1.5 billion ($960 million) – less than half the 2001 level. The sales would leave it with the core businesses of network integration, security solutions, wireless solutions and transport revenue.

Ascom CEO, Urs Fischer, said the firm would continue to employ 6,000 people, but a further 4,000 jobs would be at risk.

The firm is in the middle of a drive to refocus on its core businesses and raise cash through sales to improve its balance sheet which still has net debts of SFr420 million (at the end of May), down from SFr631 million at the end of 2001.

It intends to sell of most of its real estate portfolio, which has a book value of SFr300 million, and is seeking partnerships, joint ventures and divestments for other areas which require major investment.

Back to basics

Ascom’s announcement is part of a growing trend among big Swiss firms eager to get “back to basics”.

Firms such as ABB, Von Roll, Feldschlössen and Sulzer are among a growing list to have announced changes in corporate strategy, often focusing on so-called core businesses.

Much of the about-turn follows several years of widespread growth, take-overs and mergers.

Daniele Tedesco, a telecommunications analyst at Zurich Cantonal Bank, told swissinfo that Ascom was in the same situation as many other companies which had no alternative but to sell-off assets to maintain core operations.

“You see a lot of companies with distressed assets that are going back to the basics,” Tedesco said.

“While we had a long period of mergers and acquisitions in the past five years, a lot of strategies have actually failed, so they go back to where they came from.

Rapid growth

Ascom was created in 1986 through the merger of three Swiss technology firms – Hasler, Autophon and Zellweger Telecommunications – creating a company with a 13,000-strong workforce.

The company grew until 1993, when it was pushed to the brink of bankruptcy after racking-up losses of SFr336.6 million.

Ascom recovered, and joined the burgeoning list of global firms that boomed during the late 1990s. The company formed alliances with giants such as Ericsson and Kudelski, and acquired assets such as ABB’s Power Supplies.

However, the expansionary strategy is now a thing of the past. In April, Ascom reported a loss in 2001 of SFr396 million, triggering a collapse in its share price from an SFr130-high last year, to just over SFr10 last week.

Cash-strapped

Tedesco said Ascom’s problems were not just a lack of cash.

“I would say that the company was not focused enough and did not have the financial backing to invest in all of these divisions. So they had to concentrate on their core competencies.

“I see today’s strategy as the only viable way of ensuring the medium and long term survival of the company

Eric Parison, financial analyst for the Vaudoise Cantonal Bank, said Ascom was among many firms struggling to cope with the rising cost of capital.

Traditional sources of capital – such as bond and stock markets – are either under allergic to companies with high debt, or under a cloud.

“Thus the only solution at the moment is to reduce debt,” Parison said.

Parison said Ascom reflects many companies that expanded rapidly in the 1990s, mostly by leveraging their capital to the limit.

“[By contrast] those companies in Switzerland which have a comfortable buffer of capital, are of course, in a much more favourable situation.”

Looking for buyers

The company is also expected to sell its electronic transactions business, and is looking for a buyer for its energy systems business.

Ascom said it planned to retain its Powerline Communications business, dealing with telephone and Internet lines, but to commercialise it with partners.

The company has already sold off a number of businesses including its mailing systems.

By Jacob Greber and agencies