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Lucent Snoozefest

Perhaps it's appropriate that one of Lucent Technologies Inc.'s (NYSE: LU) most prominent issues is its pension funding, since the company these days has all the liveliness of a Florida retirement home.

This morning, Lucent released its latest numbers, which were about as exciting as watching grandpa hack away on the golf course in Fort Lauderdale. Tiger Woods, this is not. Profits: slightly up, year over year (though much came from those always mystical "one-time events"). Sequential revenue growth: flat. Guidance: growth of "mid-single digits." Zzzzzzzzzzzzz... (See Lucent Ups Revenue, Profit Falls.)

But let's talk about the big picture: Is Lucent making a comeback? Well, yes, Lucent has returned to profitability. But it's still not really growing. Seems to me as if every time a new quarter comes around, the executives just find new ways to push the food around the plate, jiggling expenses, pension credits, and cutting more employees to eke out a respectable profit number.

Meanwhile, the old-school Lucent execs and their pals continue to rake in hefty salaries while the company continues to shrink its rank-and file workforce. This is not a company that is in any kind of dynamic "expansion mode," looking for new opportunities and adding new employees. And, after all, it's companies that are expanding their employee bases that generate excitement, which is now once again the case at other more lively competitors such as Juniper Networks Inc. (Nasdaq: JNPR) and Cisco Systems Inc. (Nasdaq: CSCO). The big question is this: It's 2005, the telecom recovery has treated many folks well – if you're still cutting costs and employees, isn't there something seriously wrong?

In short, Lucent is still in survival mode. Its profitabilty improves only when it cuts costs. Proof of this mindset came on today's conference call, when some analysts chose to focus on the cost-cutting benefits of Lucent combining its wireless and wireline operations and how that might improve profitability.

Today may have been a turning point in the next stage of Lucent's recovery plan. Executives today said you'll have to wait for the real growth stories in 2006 or 2007 (see Lucent Beats Estimates, Bets on IMS). That's a big red flag. For the first time, even Lucent's biggest cheerleaders appeared to be unsatisfied and impatient with the responses from Lucent's management. Just after the release of Lucent's numbers, the stock was up. After the conference call with management, the stock was down 4 percent. Not exactly a ringing endorsement of the leadership.

Speaking of leadership, what markets does Lucent lead anymore? It's certainly not a leader in packet-switching, where it's relying increasingly on its partnership with Juniper. It's lost the FTTP and DSL game to Alcatel (NYSE: ALA; Paris: CGEP:PA). In optical, it's an also-ran, and it's cut back most next-generation product development. Legacy circuit switching is dead, and Lucent has let its data-switching products wither on the vine. You might argue that Lucent is winning the wireless CDMA battle, but is that enough to support the whole company? About the best thing you can say about Lucent these days is that it hasn't botched things up as badly as has.

I've maintained all along that the core problem at Lucent is its culture, still linked genetically to its bureaucratic origins (see Another LU-LU and Lucent Stands Pat). Lucent does not appear to be interested in core cultural change – only penny pinching, deck shuffling, and political gamemanship at the top of the executive ranks. What would consititute a core cultural change? I say the biggest sign would be the company becoming an interesting, exciting, and "hot" place to work again. I can't remember the last time I heard somebody in the industry say, "Boy, I really want to work at Lucent." The more the executives pay themselves and fire people, the less they excite the workforce.

Until that changes, the company won't change, and it will continue to get beat by more nimble, fleet-footed, technology-focused companies with enthusiastic workforces – companies like Cisco and Juniper.

I don't know what to say to the core set of optimists out there who think Lucent is a great comeback story, the next IBM, a good "value" investment. To me, it's got worse odds than a coin toss. If you want to invest in telecom techology, why not invest with leaders, rather than legacy players? As an investment, Lucent could be one of history's biggest value traps. Successful technology investing has never been about value – it's always about growth, because trends and technology change so fast it's the folks that are nimble enough to grab the next big thing that win.

Remember DEC, Wang, and Stratus Computer? As someone raised in the technology belt of Massachusetts in the 1980s, I remember these companies well. They led markets they grew up in, but when the markets changed, they could not change fast enough. And Lucent reminds me of them. Lucent may very well be the next DEC, the corporate technology dinosaur that could not change.

— R. Scott Raynovich, US Editor, Light Reading

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paolo.franzoi 12/5/2012 | 3:07:49 AM
re: Lucent Snoozefest

Nortel may be screwed up at a corporate level, BUT they do have a market leading wireline product (CS2000).

Lucent is screwed up at a corporate level and have no market leading wireline products.

So, my view is that Lucent actually needs to kill the entire wireline portfolio to fund more work on wireless. There is no way for them to regain the wireline space.

seven
flam 12/5/2012 | 3:07:47 AM
re: Lucent Snoozefest Who said that about this article? Some of us old fogeys who escaped from that cesspit.
Scott Raynovich 12/5/2012 | 3:07:45 AM
re: Lucent Snoozefest I would like to collect more scientific data on the "who's flailing worse" contest. Tough to tell.

Though by having the new COO quit after just a couple months on the job, Nortel is giving it its best shot.
st0 12/5/2012 | 3:07:44 AM
re: Lucent Snoozefest some human being are "do-ers"... some are "talkers"... It is known that energy of a human being is constant... you can only use 24 hr of your time either do things or talk about things....

"Mobile High Speed Data Helps Local Governments Improve Responsiveness
Published Date: Jun 08, 2005
Authored Date: Jun 06, 2005
Lucent Technologies and Verizon Wireless collaborated with DuPage County (Illinois) Department of Economic Development on a MHSD Pilot. Within 30 days of the pilot completion, DuPage County and the City of Naperville deployed the MHSD solution.
0900940380092965_Case_study.pdf 147 kb
Case Study > Mobility: 3G-CDMA2000 & UMTS"

case close...
st
dljvjbsl 12/5/2012 | 3:07:44 AM
re: Lucent Snoozefest Anothr aspect of Lucent's problem is its legacy from AT&T. Like the other offspring, there is still an assumption of superiority with respect to other companies especially newer ones. There is an assumption that becasue they derived from AT&T, their technology is better, more orignal etc. than that of the riff raff around them
manoflalambda 12/5/2012 | 3:07:44 AM
re: Lucent Snoozefest
Aye, definately. Might as well bring back the golf course eh?

Salute,
Manoflalambda
douggreen 12/5/2012 | 3:07:43 AM
re: Lucent Snoozefest Scott,

Its really hard to tell who is going down the tubes fastest. Here's a prediction:

In 2008 both Lucent and Nortel will be aquired by Zhone ;)

Scott Raynovich 12/5/2012 | 3:07:42 AM
re: Lucent Snoozefest >Profitability with methodical slow >improvement... as compared to your prediction >that they would go down the tubes in 2001, >2002, 2003, 2004, 2005...

The point I was trying to make here isn't that they can't continue to eke out an existence. My point is that they are being passed by a lot of people on the technology/corporate growth curve. Value investing rarely works in technology.
redtag123 12/5/2012 | 3:07:38 AM
re: Lucent Snoozefest Clearly, a ploy to drum up a little board action. What's the matter? Readership levels receding? If you are sure that Lucent will tank, go ahead and short the stock. Then at least, you'll have a legitimate reason for your rantings.
CoolLightGeek 12/5/2012 | 3:07:38 AM
re: Lucent Snoozefest Why do you continue to find it necessary to edit my posts?

Is it just that you figure you can't win the arguement unless you do so???
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