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Optical/IP

Analysts to Investors: "Buy Lucent"

Now that Lucent Technologies Inc. (NYSE: LU) has chosen a name for its microelectronics unit spinoff -- Agere Systems (see Lucent Christens Its Spinoff) -- it might be time to do a little math. After all, the value that Wall Street assigns Agere will be crucial to understanding what Lucent is worth, now that the company's stock is trading in the teens.

The IPO of Agere, slated for the end of the first quarter 2001, is expected to receive a market value somewhere in the range of $50 billion. Today, all of Lucent, now trading at about $15 a share, has a market capitalization of -- wait for it -- $50 billion. Today, some message board humorists were pointing out that this could be read as a sign that without its microelectronics division, the rest of Lucent is worth a big fat zero.

In fact, what it really demonstrates, some analysts say, is that Lucent's current share price is absurdly low and represents nothing less than a spectacular bargain for investors seeking long-term gain.

"At current prices, Lucent's selling for a song," says Seth Spalding, director at Epoch Partners.

He points out that despite the company's huge problems, Lucent (distinct from its microelectronics business) holds leading positions in optical, data, and wireless networking, and that its customer base is highly valuable.

“The assets, technology, people, and relationships" in Lucent's core business are "undervalued," he says. “This spells 'buying opportunity.' "

Others agree. "Lucent's got this incredible distribution channel," says Michael Neiberg, managing director at Chase H&Q. "I mean, [it sells to] Bell operating companies and long-distance carriers. And it's a strong customer base that's still intact."

Despite this, as Spalding points out, shares of Lucent are trading at about two times projected revenues for 2001. In contrast, shares of other leading competitors are trading at an average of 4.7 times projected 2001 revenues, a sign of how much the market has beaten up on Lucent.

Nevertheless, analysts are clear that the value of Lucent's service provider business depends on how well and how quickly the company can correct its current problems. If it can, they say (and depending on whom you talk to, that can be a very big "if"), Lucent stands a solid chance at making a comeback once Agere goes solo.

"In the communications equipment market, lots of companies, ones like Alcatel SA (NYSE: ALA: Paris: CGEP:PA) and Ericsson [Nasdaq: ERICY], have been on hard times and come back strong," says Paul Silverstein, analyst with Robertson Stephens. For investors with long-term plans, he says Lucent's still clearly a "buy."

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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