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Lucent Shares Hammered by $125M Goof

Light Reading
News Analysis
Light Reading
11/21/2000

Lucent investors can't get a break. Just when it looked as though Lucent (NYSE: LU) might be starting to get its act together, its stock's been clobbered -- again -- by a multimillion-dollar revenue reporting mistake. The vendor says the error has spoiled its investment guidance and will result in reduced yearly earnings.

Early this morning, Lucent issued a statement saying it had "identified a revenue recognition issue impacting approximately $125 million of revenue in its fourth fiscal quarter ended Sept. 30, 2000." As a result, it needs to revise its quarterly revenue report downward and take about 2 more cents off its earnings per share for the quarter and the year. Originally, Lucent had reported $9.4 billion revenues and 18 cents a share for the quarter.

How could this have happened? Broken abacus? Coffee spill on the accounting books? Revenue reports trashed with the sandwich wrappers? Lucent won't comment except to say it's launched an investigation. But analysts have long held that Lucent has been overly liberal in declaring its revenues before products are actually in customers' hands. After its first and second quarter reports for 2000, for instance, some industry observers said they suspected Lucent of asking customers to sign purchase orders early in order to pump up first-quarter figures (see Lucent's Poor ATM Numbers Confirmed). This kind of tack may have backfired on Lucent if one or more contracts were promised and recorded, then failed to pan out.

The comeuppance won't be pleasant. Indeed, it looks like yet another Wall Street disaster for the beleaguered Lucent, which seemed to be headed for better things after firing its CEO Rich McGinn last month (see McGinn: McGone).

"It's not good news," says Michael Ching, analyst with Merrill Lynch & Co. Inc. The snafu caused his firm to revise their long-term predictions on Lucent's performance, downgrading their original "long term buy" rating to "long term accumulate." Further, Ching says the firm is now chillingly "neutral" on the stock's near-term prospects. Merrill Lynch now predicts that Lucent will show 20 cents earnings per share in 2001 instead of its originally forecast 65 cents per share.

"We've been holding out hope for light at the end of the tunnel," Ching says. "Now it looks like the light has been pushed further out. There's not a lot of clarity on the outlook."

Lucent's share price had fallen over 14 percent by late morning EST today (Tuesday) and was trading at $17.88.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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