At&T; Picks Armstrong As Chief
Ending an intense three-month search for its next leader, AT&T Corp. today named C. Michael Armstrong, the head of Hughes Electronics, to revive the flagging fortunes of the venerable long-distance phone company.
Armstrong, 59, succeeds chief executive and chairman Robert E. Allen, 62, on Nov. 1. Allen, who is resigning after a tumultuous nine-year tenure, has been criticized for a disastrous foray into the computer business, which lost billions of dollars, and a decision to let go of the company’s valuable research arm as part of a breakup of AT&T.
Armstrong is moving to AT&T after shaping Hughes Electronics Corp., a unit of General Motors Corp., into a powerhouse in the satellite television business while guiding its exit from the defense business.
He takes over AT&T at a stormy time in the telecommunications business. Since a law last year freed local- and long-distance companies to enter each other’s business, companies have been combining rapidly to drastically alter the industry’s landscape.
MCI Communications Corp., the closest rival to AT&T in long-distance, is the target of a highstakes takeover battle between local phone giant GTE Corp., upstart WorldCom Inc. and British Telecommunications Inc.
Armstrong said in a teleconference this morning that he would review AT&T for two to three months before making changes. But he said he wanted AT&T to be a major force in the areas it is trying to expand into, including local service and services outside the United States.
In a possible suggestion of fresh cost cuts, he said “there’s absolutely no excuse … for any company that has the critical mass to be the largest company in an industry” to also have the lowest expenses.
AT&T also named its general counsel and vice chairman John D. Zeglis, 50, as president. He is widely expected to be groomed to succeed Armstrong as chairman and CEO in three years.
In addition, AT&T announced plans to sell off its credit-card and customer support units by the middle of next year and said its third-quarter profit dropped 15 percent in the quarter. Profit was hurt by higher expenses and a drop in revenue from its long-distance business amid stiff competition for customers. But the results still were better than expected, helped by increased volume of phone calls.
AT&T said it earned $1.15 billion, or 71 cents a share, for the third quarter compared with profits of $1.36 billion, or 84 cents a share, for the year-ago quarter. Those results were adjusted to reflect the sale of AT&T’s underwater cable business earlier this year.
Analysts had expected AT&T to earn 65 cents in the quarter, according to a survey by First Call. The combination of strong results and Armstrong’s appointment sent AT&T’s stock, the nation’s most widely held, up nearly 5 percent, on top of a nearly 4 percent gain on Friday. The stock was trading up $2.18-3/4 at $47.37-1/2 by noon on the New York Stock Exchange. Revenue from continuing operations rose to $13.38 billion from $13.23 billion.
Analysts generally praised AT&T’s succession plan - in sharp contrast to their negative reaction a year ago when the company named R.R. Donnelley & Sons CEO John Walter.