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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arak 12/4/2012 | 11:45:21 PM
re: Lucent Punts 2003 Profit Pledge "Lucent blames reduced spending on wireless and mobility products and services, as well as "an unexpected network acceptance delay" for the revenue shortfall."

"an unexpected network acceptance delay" is an unacceptable explanation for overselling and under-pricing to win a deal at any costs, and later figuring out that the solution sold to the operator was under-designed and hastily put-together POS.

LU apparently expected to get network acceptance by turning on the pilot beacon to full power all over the network, showing 5 bars on the phones for network acceptance. The customer proved smarter than LU and collected call statistics to prove that the network did not pass acceptance tests as calls could not be made or were dropped left right and center.

Operator in question is apparently Reliance Telecom in India which has not given Lucent the certificate of acceptance. LU has been paid probably around $150M of the $450 deal. LU apparently recognized revenue on this account last quarter expecting the network acceptance and now have to roll-back the recognized revenue to cover their collective rear-ends.

Legalese: Above statements constitute only my opinion on this matter and in no way shall be construted to be the truth or anywhere close to it.
yng 12/4/2012 | 11:45:19 PM
re: Lucent Punts 2003 Profit Pledge Could Reliance Telecom just be stalling? I heard that there 1-stop telecom service provider plan has not attracted as many customers as forcasted.
jgh 12/4/2012 | 11:45:17 PM
re: Lucent Punts 2003 Profit Pledge I have spoken to Lucent people and they knew as early as the end of March that the news was going to be bad.
How much longer can they allow Pat Russo deceive the sharehoders and employees with bogus claims about their move towards profitability in 2003. This will only lead to the continuing downward spiral, layoffs, less R&D spending and less customer support. The downward spiral continues and the "death watch" is on.
All thise who believe that Lucent will achieve profitabilty in fiscal 2004 I know a product that can enlarge certain parts of a male anatomy overnight.
The only thing growing at Lucent is Russo's nose when she makes promises that are bogus.
Doom 12/4/2012 | 11:45:16 PM
re: Lucent Punts 2003 Profit Pledge I never bought any Lucent's shares and never will!

Bad management, was losing money while others were making good profit.

They try to screw investors by making public that one director is buying a lot of their stock. Crap! The guy got a loan from the company and that money will be lost.

Long on Cisco

dodo 12/4/2012 | 11:45:15 PM
re: Lucent Punts 2003 Profit Pledge Let's see what the other system vendors will predict or announce in the coming days.

Fact is:we are still in a slump and the execs don't want to accept this idea. The only growing market is China and India and boy do we know how profit margins look in this region.

We just have to look at the key players in the entire Telecomm industry food chain to realize that the "100th year drought" is still on!.
lighten up!! 12/4/2012 | 11:45:14 PM
re: Lucent Punts 2003 Profit Pledge Lucent's management team has no clue and hardly any credibility. It's a deadly combination that has left so many good people unemployed while the incompetence continues to breed more of their kind. We all know the telecom market is depressed and hard hit. Hence, for Pat to go out on the limb and say that Lucent will reach profitability by end of 2003, shows how out of touch with reality she and her team is. It is totally irresponsible. Just say you don't know! People will have more respect for you then, than if you make assinine predictions that always fail to materialize. Can anyone ever believe the clowns running Lucent after all this???
rjmcmahon 12/4/2012 | 11:45:13 PM
re: Lucent Punts 2003 Profit Pledge Today it was announced that a puppet company the feds used to engineer some defense/aerospace consolidation went bankrupt. Unfortunately, LU's destiny may take a similar path and there isn't much FCC Powell can do about it.
Mr. Mutt 12/4/2012 | 11:45:12 PM
re: Lucent Punts 2003 Profit Pledge I would hardly call Loral a puppet company, they are a leading provider of satellites and extremely high end communications equipment.

And don't read too much into that bankrupcy filing. With a $1.1B deal to sell 6 satellites to Intelsat that will cover all of their $950M bank debt and cover half of their $2.1B debt, I don't see them going the way of the dodo anytime soon...
Mr. Mutt 12/4/2012 | 11:45:11 PM
re: Lucent Punts 2003 Profit Pledge The $950M is part of the overall $2.1B number.
rjmcmahon 12/4/2012 | 11:45:10 PM
re: Lucent Punts 2003 Profit Pledge I would hardly call Loral a puppet company, they are a leading provider of satellites and extremely high end communications equipment.

Nobody said fed puppets don't produce things.

The point is that prudent investors (and employees) will be wary when companies align themselves with the federal agencies or their contractors. A lesson from Raytheon and Washington Group's shenanigans is that the feds will dump debt on equity investors and run these puppet companies through Chapter 11. They do this to pay for ill conceived projects which were unable to get through normal appropriations.

Investors interested in investing in government programs would be wise to put their money in traditional vehicles such as treasury bonds. (Greenspan may be buying them back soon if the economy doesn't begin to turn around, so at least there will be one customer.)

Staying away from the puppets, be they mascots for dogfood or for fedfood, regardless of their products, would by my judgment.
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