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Lucent Dabbles Under $1

Lucent Technologies Inc. (NYSE: LU) stock continued to hang below the $1.00 line today, marking an all-time low for the company and jeopardizing the company’s listing on the New York Stock Exchange (NYSE).

Yesterday, shares in Lucent closed down $0.06 to $0.94 on heavy volume of 106 million shares. At one point the stock, which is still one of the most widely held in the U.S., sunk as low as $0.81 per share. If the stock closes below $1 for 30 straight days, the NYSE could seek to delist the company, according to its rules.

That would put serious pressure on the stock, as it would likely become much more difficult to trade. Funds that are prohibited from owning stocks outside of the NYSE might be forced to sell their shares. And the company would likely be removed from Standard & Poor’s 500 listing, another serious blow that would hurt investor confidence.

While delisting is a possibility, analysts covering the company say it's very unlikely. There are several steps the company could take to avoid such action. In the worst-case scenario, the company could initiate a reverse stock split, whereby a company may exchange one share for several. This means that if Lucent issued one share for every three shares outstanding, it would theoretically raise the stock price to nearly $3.00.

A reverse stock split is rarely done, because it often further reduces investor confidence, according to Simon Leopold, an analyst with Merrill Lynch & Co. Inc. But other companies have done it in the past. AT&T Corp. (NYSE: T) investors okayed a 1-for-5 reverse stock split back in July of this year, but the carrier has not yet executed the plan.

Some analysts say that all this talk of delisting is premature.

“It’s really irresponsible to even talk about delisting at this point,” says Steven D. Levy, analyst with Lehman Brothers. “Lucent has a long way to go before you start talking about delisting. Besides there really isn’t much difference between trading at $1.00 or $0.90 in my mind.”

Lucent’s stock has been dropping consistently for some time. Its shares have lost roughly 93 percent of their value since Lucent began restructuring in January 2001. Two years ago the company’s market capitalization was $119 billion; now Lehman Brothers is predicting that it will only be $9 billion in the next fiscal year.

Much of the most recent drop in value was due to an earnings warning issued by the company on September 13 (see Lucent Drops Its Bottom). The company said revenues would drop 20 percent to 25 percent sequentially for the quarter that ends its fiscal year on September 30, 2002 -- down from $2.95 billion reported last quarter.

The announcement seems to have unleashed panic in the investment community, which now fears that Lucent has real liquidity issues. But Levy of Lehman Brothers and Leopold of Merrill Lynch say that these issues are a bit overblown. They agree that Lucent still has plenty of cash, and if it is able to continue to cut expenses it has an opportunity to turn things around. Neither analyst has reduced his rating to a Sell.

Patricia Russo, president and chief executive officer of Lucent, has publicly stated that the company needs to continue to cut costs. She has targeted a quarterly break-even revenue rate of $2.5 billion to $3 billion in order to reach profitability by September 2003.

But the big question now is -- what will be cut? The company has already made the easy cuts in spending, like the spinoffs of Agere Systems (NYSE: AGR) and Avaya Inc. (NYSE: AV). It has also successfully reduced its headcount from 106,000 in January of 2001 to about 45,000 today. Analysts say the company will likely have to bring that number down to as low as 30,000 to meet its targets.

“There is no easy answer here,” says Levy. “The first round was cutting the fat. The second round went a little deeper. Now they are trying to say clearly, ‘We can’t be the same kind of company that we used to be.’ And they are trying to figure out what that new company will be.”

Some investors and analysts have speculated that Lucent might try to carve out its wireless equipment business or sell off Bell Labs. But again, Leopold and Levy disagree.

“It doesn’t make sense to get rid of your R&D. Then there is no growth opportunity,” says Levy. “And the wireless stuff isn’t so easy to carve out as some of the other business units have been.”

Answers to these questions likely won’t be answered until Lucent’s fourth-quarter earnings call on October 23, 2002.

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com
Belzebutt 12/4/2012 | 9:44:33 PM
re: Lucent Dabbles Under $1 Isn't this the same article that was written about Nortel or Corvis a while ago, except the company name was changed to "Lucent"?

I guess we'll be seeing a lot more of those!
pooh-bear 12/4/2012 | 9:44:32 PM
re: Lucent Dabbles Under $1 I think a more interesting question today is, "What is going to happen to Riverstone Networks?"

Their stock has really cratered. With a market cap in the mid $60M, an acquisition or merger seems like a no brainer.

Anyone care to speculate?
hitekeng 12/4/2012 | 9:44:32 PM
re: Lucent Dabbles Under $1 Why is it the instance a stock drops below a $1, everybody jumps on the delisting bandwagon? Being below the $1 threshold even for more than a month does not automatically trigger a delisting process. There are many other factors that come into play. Besides and in such a swinging market, stocks will continue to oscillate around $1 so delisting is the least of concerns for Nortel, Lucent,.. in the near future.
hitekeng 12/4/2012 | 9:44:31 PM
re: Lucent Dabbles Under $1 If it had not been for the simultaneous slump with Alcatel's stock price, then I would have hedged a couple of thousand greenbacks on them acquiring RSTN. It has been in the works for sometimes at ALA and they have been preparing and waiting for the right moment. Unfortunately, just when that moment seems to have come, HELAS!! ALA sagged along...
reoptic 12/4/2012 | 9:44:23 PM
re: Lucent Dabbles Under $1 Riverstone is the interesting story but not on the light reading web site, it seems.

Regarding them getting bought out, they currently have more than 250M in cash but are trading for something around 70M in market value. No way they are going to sell out for less than the cash value. Who is going to pay triple the market cap?

So don't think they are likely to be bought.
reoptic 12/4/2012 | 9:44:23 PM
re: Lucent Dabbles Under $1 Riverstone is the interesting story but not on the light reading web site, it seems.

Regarding them getting bought out, they currently have more than 250M in cash but are trading for something around 70M in market value. No way they are going to sell out for less than the cash value. Who is going to pay triple the market cap?

So don't think they are likely to be bought.
BobbyMax 12/4/2012 | 9:44:22 PM
re: Lucent Dabbles Under $1 When AT&T spinned out Lucent the famous saying was that the sum total of the components of AT&T will be larger than AT&T itself. The mis-calculations on the part of AT&T has wiped out over two or three million people.

Lucent is still not getting the message that the sales and marketing are very important functions. Lucent retarded the growth of its Sales and Marketing Departments. It employed too many contract workers that did not have any commitment to Lucent.

People with no suitable academic and technology training, who took over the company and ruined the company. I met a lot of people who did not have credentials appropriate to Lucent and yet they were given the job responsibililities that were well beyond them.

Lucent was spending millions and million of dollars on setting booths in many conferences. But the sad fact is that the booth attendants did a know much about the company. How did this happen?

Many of its researchers did not focus on the technology problems that the company was facing. In many instances the quality of these was no better than honme work given to MIT, Columbia, Yale and Princeton graduate students.

Cisco which never had a technology of its own and announced its first product (a switch for the MAN environment) in the last 10 years or so. It has managed to sell products from other companies soley by its sales and marketing efforts.

Lucent has ignored its business responsiblies and has managed to bankrupt millions of families.

In spite of all these, I doi not see any changes in the company behavior.

It was very clear to a lot us when it reduced its workforce to 55,000 personnel. that a further reduction was needed to balance income and expenses. It never paid any attention as to what analysis was being done on the company.

There is more struggle on consolidation of power within the company.
WolfLarsen 12/4/2012 | 9:44:18 PM
re: Lucent Dabbles Under $1 <<<regarding 250m="" 70m="" are="" around="" bought="" but="" cap?="" cash="" currently="" for="" getting="" going="" have="" in="" is="" less="" market="" more="" no="" out="" out,="" pay="" sell="" something="" than="" the="" them="" they="" to="" trading="" triple="" value.="" way="" who="">>>

Cash on hand is not a defense against an aquisition. In fact it almost invites aquisition. Anyone can get credit from a bank to purchase cash.

So say you go to the bank and get 320M credit (250+70) and then buy the company and pay back the bank 240. You are left with 80M debt, 10M for restructuring.

There are also some other ways to further margin the assets of Riverstone to come away with the whole ball of cash, the company and a bunch of long-term debt.

</regarding>
maryhadalambda 12/4/2012 | 9:44:03 PM
re: Lucent Dabbles Under $1 I saw a lucent van parked on a street in Los Angeles for nearly 3 months. There was some fiber being installed in a street nearby. The van just sat there and collected dust and parking tickets. If they could not better use their assets than that, then they deserve what they get.

Golf courses, corporate jets. I hear they have a palatial office too. A parade of losers has come from that company: McGinn, Russo, Fiorina (another one who beliees comes through acquisition)

I even had a Lucent answering maching. The POS never worked worth a damn.
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