Lucent to Cut Headcount, Products

Lucent Technologies Inc. (NYSE: LU) today announced "a more aggressive restructuring plan" that will result in the loss of 10,000 more jobs and a larger-than-expected loss per share for the present quarter. The company also gave a look at its plans for next year (see Lucent Lowers Breakeven, Cuts Again).

Calling the current market "unprecedented" and "like flying a 747 through a storm and trying to change engines at the same time," Lucent CEO Patricia Russo told analysts on a conference call that Lucent is cutting expenses and taking other steps to meet further revenue sinkage in 2003. "We're planning down about 20 percent over 2002," she said.

Lucent's hacking away at both people and products. In addition to reducing staff to 35,000 by the end of fiscal 2003, it's aiming for a lower-than-ever breakeven point of $2.5 billion or less. Execs hope the new target will result in positive cash flow by mid-2003. Near-term, there's a price to pay: The company is taking more charges than expected this quarter, resulting in a pro forma loss of about $0.65 per share.

The news fuels ongoing questions about Lucent's product line and what it might keep or throw out. In today's call, execs declined to offer much detail, saying information about the specific segments targeted for cuts, as well as financial modeling and other forecast clarifications, will be presented with the company's quarterly report on October 23.

But Russo made it clear that whatever won't benefit Lucent in the near term will be shunted aside. Where the market for a product is unclear or benefits aren't projected to emerge for more than 24 months, the purse strings are closed.

Just what that means remains to be seen. But on the "keep" side, Russo reiterated Lucent's interest in "optical, circuit, and packet switching; mobility; and network operations," and cited a new strategic focus on services.

She said Lucent's picked several focus areas in the services market, including professional services like task optimization, outsourcing of work that customers now do in house, and multivendor equipment support. The company is exploring what it needs to address these service areas, and Russo says Lucent expects to see these businesses grow.

At least one analyst says it's not clear whether Lucent's focus on services will mean a reduction in its emphasis on products. "Lucent's been reasonably successful with its services," says Tom Nolle, president of consultancy CIMI Corp. But he says that with limited resources, it's going to have to pick a spot. Ultimately, it might not be a bad idea for Lucent to cast itself as a kind of mega-integrator, he says. The reason, Nolle asserts, is that the so-called legacy products in which Lucent enjoys a large market share, such as circuit-switching voice equipment, have a limited outlook. But Lucent may not be able to risk spending big bucks to replace them. Alternative: Dig in wherever revenue looks likeliest, and wait for a market turnaround.

So where might Lucent cut next? Here's how the list is shaping up:

  • ATM gear One source, who asked not to be named, says the company has an internal deadline this month regarding what to do with its line of older ATM multiservice switches, including the GX 550, which Lucent acquired through its purchase of Ascend Communications. But Nolle thinks it would be inadvisable for Lucent to cut products like the 550 without replacing them first. And while Lucent has a high-end ATM switch, the TMX 880 (see Lucent Unveils Core Switch), that MPLS-based products isn't marketed as a 550 replacement.
  • Softswitches There's been speculation that Lucent may pull the plug on its softswitching products, considering the dire straits that market is in (see Softswitches Head for a Shakeout). In many ways, this fits the bill of a segment in which immediate benefits may not be forthcoming for Lucent.
  • Wireless router Lucent may jettison the services router it bought with Springtide, sources say (see Springtide Ebbing Away?). This may open the gates for some interesting partnerships.

So far, nothing's come out of Lucent to indicate the end of any of these products. Indeed, "end" may not be the accurate term. The company may simply decide to cut R&D for products that aren't growing, but for which customers remain.

For now, Lucent isn't saying anything more than this. The majority of cuts will be done as quickly as possible, according to CFO Frank D'Amelio. He said reductions would happen throughout "all product areas and geographies" and take place, most likely, before the end of this year.

Lucent took other steps today as well. It's canceled its untouched $1.5 billion credit facility in order to avoid any warrants or penalties that might emerge before the facility expires in February 2003.

On the upside, Lucent says it has about $4.4 billion in cash and marketable securities and plans to exit 2003 with more than $2 billion, without drawing on any new credit.

At press time, Lucent shares were holding unchanged at $0.70.

— Mary Jander, Senior Editor, Light Reading
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toonces_has_the_car 12/4/2012 | 9:34:19 PM
re: Lucent to Cut Headcount, Products I certainly hope the [telecom] elevator is near the bottom floor.

I don't know how the GBX is doing these days. My guess is that this is one of the few success stories outside of the transport business. Sales have tapered off, to be sure, but if it is still bringing revenue in, I doubt it will be cancelled.

hiddentiger 12/4/2012 | 9:34:18 PM
re: Lucent to Cut Headcount, Products Same old story- aim high...shoot low. Before its over, LU will be a 100% 5E services & maintenance company.
gigeguy 12/4/2012 | 9:34:12 PM
re: Lucent to Cut Headcount, Products The TMX can't be long for this world ... but I can't believe they would EOL the GX 550. Talk about raw stupidity ....
seeallwan 12/4/2012 | 9:34:09 PM
re: Lucent to Cut Headcount, Products The TMX880 seems to have a life of it's own despite "ZERO" revenue or any forecast in revenue
for the next 18-24 mos. The CBX/GX product lines are the only ones making any money in
Westford, MA.

I guess we all know where Ken and Janets political views sway regardless of revenue. I hope
they are held accountable for there very poor decisions on what they did to the CSD products and
people in Westford.

I hope Juniper buys the Westford "Cascade" Data business before LU does any more irreversible
Belzebutt 12/4/2012 | 9:34:07 PM
re: Lucent to Cut Headcount, Products I hope Juniper buys the Westford "Cascade" Data business before LU does any more irreversible

Get real, Juniper just canned Unisphere's ATM switch, why would they buy someone else's, let alone Lucent's?
MonkeyBoy 12/4/2012 | 9:34:07 PM
re: Lucent to Cut Headcount, Products http://www.lightreading.com/bo...
yomama 12/4/2012 | 9:34:07 PM
re: Lucent to Cut Headcount, Products I certainly hope that Lucent would not mess with Westford too much, I don't know about the Springtide group but the CBX and Gx 550 should be improved on, I heard it's still selling B-STDX 9000's overseas. There are thousands of 9000's and CBX 500's installed thru the US at all major service providers. The TMX 880 sounds too much like a GOD BOX and sales projections are weak to slim in the next 24 months.

But I would not be suprised if Lucent kept the TMX-880(Nexabit product) and cut the successful Cascade products....but then again LU could'nt of written a better plan for it's demise so you never know...

seeallwan 12/4/2012 | 9:34:04 PM
re: Lucent to Cut Headcount, Products I guess you should tell the Juniper folks to get real then...from what I've heard, they'll be at the Westford (CSD) facility next week to explore there options.

Your correct in that Juniper canceled the Unisphere ATM, but when's the last time you saw Juniper have tens of thousands of ATM switches worldwide like the CSD products?

Although my sources could be worng, it makes an interesting case considering LU doesn't have a clue how to run a Data business...and remember the Unisphere Pres came from Cascade.

jgh 12/4/2012 | 9:33:57 PM
re: Lucent to Cut Headcount, Products I agree about Juniper possibly looking at the Cascade/Lucent product.
After Lucent bought Ascend and the Cascade ATM product, they had no sucees or idea on how to sell it other than to support the existing users.
Maybe Juniper can do something with it and at the same time buy some customers for their other products.
brahmos 12/4/2012 | 9:33:57 PM
re: Lucent to Cut Headcount, Products westford,MA: a friend says they are trying to
transfer work as feasible to india by
training a lot of young folks sent for training
stints from their office in bangalore. sometimes
indian nationals here were/are(?) encouraged to
accept posting in b'lore to lead these new teams.

if thats true, would indicate not much new development of these product lines.

could someone either confirm or deny the above?
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