Lucent Punts 2003 Profit Pledge

A warning blows away Pat Russo's promise of profits this year. Lucent retracts magazine statement UPDATED 7/16 11AM

July 15, 2003

3 Min Read
Lucent Punts 2003 Profit Pledge

The bright spot on the horizon just experienced an eclipse at Lucent Technologies Inc. (NYSE: LU).

The company warned late Tuesday that its hopes to return to profitability in 2003 -- articulated for months as a key goal by CEO Pat Russo (see Lucent Grows Slightly, Loses Less) -- won't happen. Instead, when Lucent posts its latest quarterly report July 23, it will show a sequential revenue drop of 18 percent. What's more, "continued uncertainty in the market," particularly in its Mobility division, forces the forecast for profitability into 2004.

Separately, Lucent issued a statement Tuesday retracting a comment made by one of its lawyers, Paul Saunders, in the July 7 issue of Fortune Magazine (see Lucent Retracts Un-Fortune-ate Quip). In that article, Saunders, a partner at Cravath Swaine & Moore LLP told the magazine he thought Lucent's $125 million transaction with Winstar in September 2000 reflected a "failure of communication."

Lucent says in its press release: "Lucent recognizes such comments regarding the transaction were both inaccurate and inconsistent with the terms of the settlement in principle" it reached with the Securities and Exchange Commission (SEC) in February 2003. The agreement, which the SEC has yet to approve, allows Lucent to forgo any admission of wrongdoing while promising to avoid future securities violations (see Lucent to Settle With SEC).

It's not clear whether Saunders transgressed the terms of this pending agreement by publicly soft-pedaling the charges of fraud raised by the SEC. Lucent won't comment beyond the press statement, and neither the SEC nor Saunders had returned calls by press time.

Meanwhile, the SEC is reportedly considering filing civil charges against two former employees allegedly involved in the events of the case (see SEC May Pursue Former Lucent Execs).

The retraction hasn't helped stop Lucent shares from a post-warning battering: In morning trading on Wednesday, shares were selling at $1.70, down $0.22 (11.46%).

Lucent had warned about low growth expectations for 2003, but executives continued to hope that various steps taken, including the sale of convertible debt, would shore up its finances this year (see The Convertible Makes a Comeback).

It's not clear what impact the current quarter has had on nixing the profitability forecast. Now, the firm says revenues will likely come in at about $1.9 billion, versus last quarter's $2.4 billion. There will be a loss per share between 6 and 8 cents. Up to now, analyst consensus on First Call predicted a loss of 5 cents.

Lucent spokesman Bill Price says more details will be furnished in Lucent's conference call next week. But the company hopes to meet the impact of the bad news by seeking new revenue opportunities, such as enhancing its services business, while continuing to lower its breakeven point.

The breakeven point had been set at $2.4 billion but will now be lowered, Price says. What impact that may have on personnel and in other areas remains to be seen.

Lucent blames reduced spending on wireless and mobility products and services, as well as "an unexpected network acceptance delay" for the revenue shortfall. Lucent's been counting on that wireless money: Last quarter, the Mobility division represented 52 percent, or $1.26 billion of Lucent's overall revenues of $2.4 billion. In comparison, Lucent's Integrated Network Solutions (INS) division, which sells wireline products and services, accounted for about 42 percent, or $1.02 billion. Other sources of revenue made up the rest.

The news illustrates how market forces continue to buffet the telecom sector despite a rally in tech stocks and hopes for recovery (see LR Index Led Rally in 1H 2003 and Poll: Optimists Reign).

— Mary Jander, Senior Editor, Light Reading

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