Lucent Loses $1 Billion, Plans Big Layoff

The cleanup accelerates, but optical networking growth is still nowhere to be found

January 24, 2001

3 Min Read
Lucent Loses $1 Billion, Plans Big Layoff

For the first quarter of 2001, Lucent Technologies Inc. (NYSE: LU) has announced a $1.02 billion loss and plans to lay off 10,000 employees (see Lucent Tightens Belt).

The company this morning announced revenues of $5.84 billion, down 26 percent from the same quarter a year ago. It posted a $1.02 billion loss or 30 cents a share, compared to earnings of $1.08 billion or 33 cents a share in the same quarter last year.

Even its optical networking products didn't help Lucent much: Optical sales were down 26 percent sequentially, the company said. But CEO Henry Schacht was optimistic on optical in a conference call on the earnings this morning. “We will see improved results sequentially [for optical networking] from here on in,” he said.

Schacht told analysts that its ultra-high-capacity DWDM system, the WaveStar OLS 1.6T has been well received. Lucent last week signed a three-year, $100 million deal with Time Warner Telecom Inc. (NYSE: TWTC) (see Lucent Signs $100M Time Warner Deal).

Schacht also said trials of its Lambda router at Global Crossing Ltd. (NYSE: GX) were "so far so good."

On the downside, the company had no comment on a possible optical win with WorldCom Inc. (Nasdaq: WCOM) reported by the Wall Street Journal. And Schacht pleaded "no comment" when asked about Lucent's elusive OC192 products, the lack of which analysts have repeatedly cited as a mark against the company.

Regarding Lucent's general financial picture, Schacht reiterated his December announcement of plans for a company turnaround (see Lucent Starts Cleaning Up): “The company is strong and has a lot of talent. We are taking the appropriate steps to achieve our goal of performing at, or better than, the market level by the end of 2002.”

As part of its restructuring, the company outlined a seven-point plan to bring the company back to profitability. Some of the highlights (or lowlights) of the plan were:

  • Layoff 10,000 employeesLucent plans to lay off 10,000 workers between February 15 and early March. In addition, Lucent will shed about 16,500 with its Agere Systems spinoff. And the company will trim another 6,000 workers by outsourcing some of its manufacturing. This will bring Lucent's total workforce down to 90,000 from 123,000.

  • Restructuring charge of $1.6 billionTo pay for the layoffs, facility consolidations, and the elimination of some product lines, the company will take a $1.6 billion charge in the second quarter.

  • Outsource manufacturingLucent plans to sell two large manufacturing facilities in Columbus, Ohio, and one in Oklahoma City. It then plans to outsource the manufacturing and assembly performed at those plants.

  • Reduce operating expenses by $2 billionThis is $1 billion more than anticipated in the December conference call. The company plans to hire an internal manager and a consulting company to oversee the process.

  • Eliminate $400 million in capital spendingThe company did not specify where these cuts would occur. However, it did indicate it would discontinue some product lines.

  • Secure a $4.5 billion line of credit To help pay for things in this restructuring phase, the company has secured a $4.5 billion line of credit from J.P. Morgan & Co. (Nasdaq: JPM) and Salomon Smith Barney.

Schacht acknowledged Lucent is in for an uphill climb, and he said it will take time for the layoffs and other cost-cutting measures to take effect. “While sales will improve in the second quarter, the impact on the bottom line, from the cost reductions, won’t be felt until the third quarter,” Schacht said.

Lucent's also under pressure to reduce costs it didn't cite in this morning's call. The New York Times reports today that Lucent is in negotiations to sell an exclusive golf club for which ex-CEO Rich McGinn doled out $40 million between 1998 and his dismissal from Lucent in October. The 36-hole Hamilton Farm Golf Club, located in posh Peapack-Gladstone, N.J., included a helipad, a 20,000-square foot guest home, a wine cellar and tasting room, and a full-time concierge, the Times says.

-- Matt Malina, research associate, and Mary Jander, senior editor, Light Reading

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