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Lucent Drops Its Bottom

Lucent Technologies Inc. (NYSE: LU) today added its warning to a growing list of revenue reduction forecasts. The rash of warnings indicates further fallout from the carrier spending drought, and few analysts are willing to call a bottom on the ongoing downturn.

In today's announcement (see Lucent Projects Downward), Lucent says revenues will drop 20 to 25 percent sequentially for the quarter that ends its fiscal year on September 30, 2002 -- down from $2.95 billion reported last quarter (see Lucent Loses $7.9B, Plans Layoffs). Lucent's earnings report is expected October 23.

Lucent expects to see a pro forma loss per share of $0.45 for the quarter, compared with a pre-tax pro forma loss per share of $0.24 last quarter.

Lucent's shortfall was anticipated by most, particularly after recent comparably severe warnings from ADC Telecommunications Inc. (Nasdaq: ADCT) (see ADC Comments on Tellabs' Warning), Nortel Networks Corp. (NYSE/Toronto: NT) (see Nortel's Bottom Sags), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) (see Tellabs Looks to Europe).

Still, the size of the loss is surprising: First Call analyst consensus had called for a loss of $0.16 per share.

Lucent attributes the shortfall to "continuing market softness and ongoing uncertainty in customer spending levels, particularly in North America." Also, the company says "charges associated with a significant customer financing default this month, and the inability to recognize tax benefits on losses" helped cuts its anticipated EPS. Lucent won't identify the defaulting customer.

Like the thunderclap after a lightning flash, layoffs always follow earnings warnings. Lucent isn't saying how many jobs will go. But as of June 30, 2002, the company had 53,000 employees and predicted about 7,000 of those would need to be eliminated by year end as a part of a plan to reach a breakeven point of $3.5 billion in quarterly revenue, with gross margins in the low 30s (see Will Lucent Win After Warning? and Lucent Warns Again).

Now, the company wants breakeven to fall between $2.5 billion and $3.0 billion. That implies another cut comparable to the one announced in July.

Lucent also has other restructuring plans related to culling its product lines. The company already has jettisoned several products in the last months (see Lucent Terminates the LambdaRouter and Lucent Loses $7.9B, Plans Layoffs). And in a September 6 presentation to analysts, Janet Davidson, president of Lucent's Integrated Network Solutions Group, indicated the process will continue with products including the Wavestar Bandwidth Manager, next-generation DSLAMs, and B-STDX switching equipment, which were highlighted in her slides as playing poorly or at the ends of their life cycles.

Lucent still plans to reach profitability by the end of 2003 and says its latest bad news doesn't affect its credit facility or debt structure. Indeed, Davidson's slideshow depicted Lucent's hopes of gaining 29 percent of a $167 billion worldwide carrier market in 2002. While carrier consolidation and cutbacks will continue, she indicated Lucent's hope that growth will come as carriers ponder moving from circuit to packet network architectures.

At press time, Lucent shares had dropped 8.48% on the news and were trading down $0.14 at $1.51.

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com
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Belzebutt 12/4/2012 | 9:46:37 PM
re: Lucent Drops Its Bottom Lucent attributes the shortfall to "continuing market softness and ongoing uncertainty in customer spending levels, particularly in North America."

Don't forget "losing market share to all their major competitors".
jgh 12/4/2012 | 9:46:37 PM
re: Lucent Drops Its Bottom Does anyone at Lucent, Nortel, ADC, etc have any ideas what their revenues will be from quarter to quarter? If they are basing their revenue form the sales forecast, they might as well as use a crystal ball and would probably get better numbers.
The salespeople are usually forecasting optimistic numbers and with all the layoffs are making sure that their managers get even better numbers. After all would you forcast a realistic low number when layoffs are looming.
Hey Pat, how about talking to your major customers and asking them whay they will spend over the next 3-6 months and get a realistic number. I guess you want your numbers to reflect an optimistic outlook for the analysts.
Can't wait for the next quarterly numbers.

dietaryfiber 12/4/2012 | 9:46:36 PM
re: Lucent Drops Its Bottom Belzebutt,

I am not a big Lucent fan, but I am interested in your comment. My view is that things in the overall market are still declining (example rumors are that Corvis will show 0 revenue this quarter). So, is Lucent really losing worse than the rest? I have no quarrel, just looking to see what you think.

dietary fiber
Belzebutt 12/4/2012 | 9:46:36 PM
re: Lucent Drops Its Bottom I am not a big Lucent fan, but I am interested in your comment. My view is that things in the overall market are still declining (example rumors are that Corvis will show 0 revenue this quarter). So, is Lucent really losing worse than the rest? I have no quarrel, just looking to see what you think.


Here's a source:

http://biz.yahoo.com/rf/020909...

"Synergy found the top five players increased their share of the overall combined market.

In addition to Cisco, Siemens grew to 11.7 percent in the second quarter from 11.4 percent the previous quarter, according to the study. Ericsson grew to 11.3 percent from 9.4 percent, Alcatel edged higher to 10.2 percent from 10.1 percent, and Nortel rose to 9.8 percent from 9.7 percent.

However, Lucent's share slid to 7.8 percent in the second quarter from 9.5 percent in the first quarter, Synergy said."


This is likely a big contributing factor for Lucent's latest drop in revenue. Since Nortel expects "only" a 10% drop while Lucent expects 20%-25%, clearly Lucent is loosing market share.
dietaryfiber 12/4/2012 | 9:46:35 PM
re: Lucent Drops Its Bottom
Thanks, good insight.

dietary fiber
alexchilton 12/4/2012 | 9:46:34 PM
re: Lucent Drops Its Bottom Kenneth:

One more board, one more market share post.

Alex.
mpl 12/4/2012 | 9:46:33 PM
re: Lucent Drops Its Bottom Look at the numbers and come up with your own conclusions.

Verizon form 8k from July 31, 2002:
http://biz.yahoo.com/fin/l/v/v...

key points: capex guidance for 2002 is $13 to $13.5B.

Verizon capex from cash flow sheet for past 4 quarters:

http://biz.yahoo.com/fin/l/v/v...

Key points:
Verizon's capex for last 4 quarters:
Sep 30, 2001: $3.314B
Dec 31, 2001: $4.894B
Mar 31, 2002: $2.374B
Jun 30, 2002: $3.136B

Verizon's capex for the first six months of 2002: $5.51B

If we believe Verizon's July 31st, 2002 8K filing of $13B capex for 2002, Verizon will have a back end loaded capex of $13B minus $5.51B = $7.5B.

Now, based on last years capex figures, we see that Verizon had 50% more capex in their Dec01 quarter than their Sep01 quarter ($4.894B compared to $3.314B = 1.48x more in Dec01).

Assuming the same proportion this year would imply $3B capex in Sep02 and $4.5B in Dec02.

This would also imply a drop in capex for Sep02 compared to Jun02's $3.136B.

The June and Dec quarters carry the largest capex historically.

Capex has been trending down from 2001 to 2002.

I don't know whether Verizon will stick to their July 31st capex guidance and wouldn't be surprised to see it drop to the $11B to $12B range for the year. However, if they do stick to their capex guidance, we could see a significant pick up in telecom spending starting in Q4. Moreover, the recent NextWave spectrum auction ruling may provide Verizon the liquidity to meet their previosuly stated capex guidance.

I'm not saying that Lucent will see a proportionate share of this increase, but the analyst community may use the growth numbers to start pumping telecom in the coming months. Perhaps the recent insider buying at Lucent also anticipates this market dynamic.

MPL
puddnhead_wilson 12/4/2012 | 9:46:32 PM
re: Lucent Drops Its Bottom Thnak you for that information, but I do wonder how much of the market share shift is due to product differential. It is a retty broad market they are measuring.
lastmile 12/4/2012 | 9:46:31 PM
re: Lucent Drops Its Bottom LU NT CORV JDSU GLW CIEN etc etc.
The list goes on and on.
Let us not find fault with a particular company because the entire fiber sector is in dire straits.
Instead of blaming the CEO's, let us start afresh. The former FCC chairman was on TV today, and he said that unless the consumer has something new in front of him/her it is futile to discuss a new killer application.
There are so many killer applications, but the last mile bottleneck will persist unless someone takes a drastic step to start a fiber roll-out to the masses. Then new competition will kick in, and the consumer will be happy.
If I had a choice between FTTH, Cable, DSL what would I choose?
Let's start afresh and think about the unlimited and unrestricted bandwidth that fiber can offer.
The response to my post will be negative because eventhough fiber is inexpensive, the labor and ROW costs are beyond the reach of anyone and everyone.
So the future is not constrained by technology. The barrier here is construction costs, and I am sure some people are working on some kind of remedy.
Next month the FTTH council meets in New Orleans. I am sure that they will educate people like me and many others who are skeptical about FTTH.
PresterJohn 12/4/2012 | 9:46:30 PM
re: Lucent Drops Its Bottom lastmile said:

"There are so many killer applications, but ... "


I really can't agree that there are any killer applications in existence right now. In fact, a true "killer application", by definition is something previously unknown or unlooked for that, upon realization, grabs the market by storm and drives a level of sales or use far greater/larger than anyone could have imagined before it existed. Some notable killer apps:

- VisiCalc - sold more Apple IIs than anyone could have believed. I know, I was there.

- The automobile - created a market for oil larger than anyone could have imagined.

- The light bulb - created incredible demand for electricity

None of the things that get trotted out in these discussions satisfies that definition of a killer app. VOD, VoIP/VoP, distance learning, home security, yada, yada, yada. People ALREADY HAVE these things in one fashion or another. A higher bandwidth connection only increases their convenience or utility - it doesn't open new possibilities, it just facilitates increased volume/decreased time.

This isn't to say that there isn't a killer app waiting to appear, it just means that all of the blatantly obvious, much discussed applications so far, probably cannot justify last mile fiber connections to homes. When someone truly creates an application that cannot be obtained any other way than through fiber connections to the home, AND consumers fall in love with it AND are willing to part with enough of their discretionary income to pay for it, then we'll see FTTH take off.
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