Lucent Sets Agere IPO Date
Wall Street applauded the news. In morning trading, Lucent shares rose $0.24 (4.53%) to $5.59, despite savage reductions elsewhere in the Light Reading Index.
And good reviews rolled in: "At the current levels, we remain steadfast in our belief that LU shares represent a tremendous investment opportunity for those investors that have the patience to wait," wrote Steve Levy, managing director at Lehman Brothers in a note following the earnings call.
"In spite of weak results this quarter and continued lackluster demand... Lucent... will survive as [one of the] top players," wrote Bill Lesieur, director at Technology Business Research Inc. in a note today.
But the ongoing lag in telecom spending adds reservations even to votes this strong. Levy says Lucent's doing the right things to turn the company around, but the market recovery it needs to start growing again is still a "wild card." It could be year-end before any significant improvement in carrier spending is seen, he asserts.
Lucent itself isn't giving any revenue guidance for this quarter and has pushed its "return to profitability" prediction into sometime in 2003. The company's also aiming to cut costs further, to bring its goals in line with reduced market expectations. "Given the continuing market uncertainty, it's clear that our breakeven point will need to be lower than the $4.25 billion that we had planned," said CEO Patricia Russo in a statement. "We are now working toward a breakeven revenue figure that will be somewhat below $4 billion."
Among its cost-cutting measures, Lucent intends to reduce its workforce to 50,000 by the end of fiscal 2002, nearly 6,000 fewer employees than it has today and 12,000 less than it had at the end of 2001. So far, Lucent has lost more than 50 percent of the roughly 112,962 employees it had in mid-2000.
Despite ongoing cuts, Lucent seems to have stanched its arterial losses of a year ago, while improving analysts' overall opinion of the company's turnaround efforts. Today, it reported a pro forma loss per share of $0.20, up from $0.23 last quarter (see Can Lucent Make It?).
While this loss was greater than the $0.17 analyst consensus reported by First Call, Lucent says it was increased by a tax charge of six cents and later balanced out by a tax credit that came too late to report during the quarter.
Revenues were $3.52 billion, relatively flat with the $3.47 billion reported last quarter and certainly on the low end of the company's guidance (see Lucent Weighs on the World). Gross margin for the quarter was 23 percent, up nine points sequentially.
A recurring theme on today's call was the growth in the company's wireless products, which accounted for nearly 45 percent of this quarter's revenues. Wireless gear rose 8 percent sequentially and 4 percent year-over-year, thanks to increased U.S. sales and various cost reductions for the business.
In contrast, revenues from other products classed as Integrated Network Solutions (INS) by Lucent (including optical networking products), accounted for $1.79 billion, or about 51 percent of Lucent's quarterly revenues. The INS segment rose 5 percent sequentially but declined 49 percent year-over-year.
Lucent has also successfully met bank conditions for the spinoff of Agere, which is set to occur June 1, 2002. Those conditions included a return to positive EBITDA (earnings before interest, taxes, depreciation, and amortization), a generally accepted measure of liquidity. Despite pressure from analysts, Lucent wouldn't reveal its current EBITDA figures, saying only that they were positive.
Meeting the other bank conditions for the spinoff, Lucent has managed to raise $5 billion in cash from non-operating sources, including: the sale of its fiber business to Furukawa Electric Co. Ltd. (see Did Furukawa Buy a Lucent Lemon?); a private securities sale (see Lucent Raises $1.75B); and the sale of its Customer Care software business (see Lucent Sells Software Unit for $300m).
In sum, it looks like Lucent's on the right track, although the boost it needs from its customers isn't yet on the horizon.
— Mary Jander, Senior Editor, Light Reading