It gets distracted by new products or services and starts buying up noncore assets. Those extras divert funds away from growing the company’s profitable core specialties. That’s how a company loses focus.
Suddenly, the company sails into rough economic weather and discovers it has excess cargo. In the business world, refocusing means identifying expenses, debt, and unhelpful assets, and throwing them overboard to regain profitability.
1. Energy
Chesapeake Energy Corporation (NYSE:CHK) has $13.4 billion in debt and struggles to stay in the black. But Chesapeake Energy Corporation (NYSE:CHK) also has an overhaul plan. Step one was choosing a new CEO, meet Mr. Robert Lawler.
Step two is cutting expenses and selling off unnecessary assets. Chesapeake Energy Corporation (NYSE:CHK) made plans to sell $4 to $7 billion in assets during 2013, and is right on track. On July 3, Chesapeake Energy Corporation (NYSE:CHK) sold Texas natural gas shale assets for roughly $1 billion, bringing total assets sold this year to around $3 billion.
Step three is using the new funds to pay off all that dastardly debt and invest in production. Selling natural gas assets will allow Chesapeake Energy Corporation (NYSE:CHK) to increase profitability by focusing on oil production, where prices are higher.
2. The spinoff
Back in 1996, AT&T Inc. (NYSE:T) needed cash in order to focus on the competitive telecommunications sector. So AT&T Inc. (NYSE:T) offered an IPO for Lucent, its former manufacturing arm, raising over $3 billion cash. Focusing on telecommunications worked.
Today, AT&T Inc. (NYSE:T) is the second largest U.S. wireless service provider and continues to grow. Adding 1.2 million postpaid smartphone subscribers last quarter resulted in a diluted EPS of $0.67, above $0.60 a year ago.
Fast forward a decade. In 2006, Lucent merged with the French company Alcatel to create Alcatel Lucent SA (ADR) (NYSE:ALU). The joint company is badly in need of a refocus. Since the merger, Alcatel Lucent SA (ADR) (NYSE:ALU) made a profit exactly once. One time, in six years!
In former CEO Ben Verwaayen’s defense, he did unite the French and American companies, reducing overlap and increasing their joint competitiveness. But Alcatel Lucent SA (ADR) (NYSE:ALU) now looks to Michel Combs to restructure and bring profitability. The plan is to lay off unnecessary jobs and sell off unnecessary business units. Figuring out which ones are unnecessary is the tricky part of refocusing.
Alcatel Lucent SA (ADR) (NYSE:ALU) divested its Genesys contact center business in the first quarter of 2012. Perhaps the rest of Alcatel Lucent SA (ADR) (NYSE:ALU)’s small, unprofitable Enterprise segment should follow, allowing it to regain profitability in Networks, its largest segment.
