Can Lucent Make It?

Executives at Lucent Technologies Inc. (NYSE: LU) say the company's on track to profitability in 2002 and will start to show the turnaround toward that goal next quarter. The company still showed losses and low gross margin in its quarterly report this morning (see Lucent Reports Q1 Results).

Highlights of today's report include:

  • Revenues down substantially but higher than expected. Pro forma revenues were $3.5 billion for the first fiscal quarter 2002, down 27 percent sequentially but in line with previous guidance of $3.1 to $3.4 billion. Gross margin was 13.7 percent.
  • Loss per share reduced. Loss per share from continuing operations is 23 cents, compared with 28 cents last quarter. This figure also is in line with Lucent's guidance, which was for a loss of 23 to 26 cents per share.
  • Low revenues inside and outside U.S. There is now no clear hope of improving revenues by shifting Lucent's geographical emphasis. The company reported that U.S. revenues were down 26 percent sequentially to $2.2 billion for the quarter, and international revenues were down 29 percent, to $1.3 billion.
  • Agere spinoff is "on." CFO Frank D'Amelio said Lucent's on track to spin off Agere Systems (NYSE: AGR) and will base the valuation on next quarter's financials. In the event those financials preclude a spinoff, D'Amelio says he's confident of getting an extension from the U.S. Internal Revenue Service. He says the company's already looked into this.
  • More layoffs. Lucent's already reduced its workforce by about 58 percent since restructuring began last year, reaching an employee census of 62,000. Now, it says it's in line to lose another 7,000 by June 2002. Lucent says this isn't new, that at least 5,000 jobs already were counted in its Phase II restructuring plan announced in July 2001, and that 2,000 will probably come about naturally through attrition and as additional plants are closed.
  • New products. This quarter, Lucent plans to roll out its new LambdaUnite and LambdaXtreme optical products (see Lucent Unveils Product Lineup). And it's set to announce new customers within the next couple of weeks for the LambdaRouter, execs said.

In a conference call with Wall Street analysts this morning, Lucent execs maintained an upbeat tone despite questions about just how the company will make profitability this year. They said the company plans 10 to 15 percent sequential revenue growth for next quarter, as well as gross margin in the 35 percent range. They say "improvements to the income statement, expense line items, and provisions for bad debt and vendor financing" would result in the desired changes in revenue and gross margin.

At least one analyst, though, says Lucent apparently has cards up its sleeve it's not yet willing to show. Otherwise, even allowing for generous gross margin improvements, the spinoff of Agere, and revenue uptick next quarter, the figures just don't add up to profitability by year's end.

"I'm going over the numbers with them again, but realistically, they must have a couple more divestitures or plant sales [than what they've mentioned already]," says Steve Kamman of CIBC World Markets.

What will be sold? Kamman isn't willing to venture a guess. But Lucent management seems confident that whatever it plans will do the trick -- and show evident change by next quarter.

Apparently, Wall Street's confident the change will come. This afternoon, Lucent shares were trading at $6.87, up 0.18 (2.69%).

Interestingly, despite stating that optical networking lost the most money of any Lucent product area last quarter, execs insist it's among the key areas of focus. In her opening remarks, new CEO Patricia Russo mentioned "optical data and wireless" as strategic products for Lucent (see Lucent Stands Pat and Pat Russo)

"While customers confirm that spending is down, they also confirm that they want and need help... in defining a path to next-generation networks, while creating and offering profitable new services at lower cost," said Russo

In closing remarks, chairman Henry Schacht reiterated the certainty that the company will make its target. "Can we do it this quarter? Stay tuned."

— Mary Jander, Senior Editor, Light Reading
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let-there-be-light 12/4/2012 | 11:01:41 PM
re: Can Lucent Make It? Hey All,

Harvey had something positive to say today, so as I keep saying, "GIVE HIM A BREAK!!"
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