Will Lucent Win After Warning?
Paradoxically, the news coincides with reports that Lucent may be in line for some key wins with carrier customers, although the outcome remains to be proven.
Wall Street is erring on the side of caution. Lucent's stock was trading at $2.80 per share early this afternoon, down $0.15 (5.08%).
The company also says it expects to see an improvement in its pro forma loss per share. At its last earnings report in April, the company reported a 20 cents loss per share, which included 6 cents of a one-time tax charge (see Lucent Sets Agere IPO Date). With that out of the way, Lucent expects to show an improved -- if still negative -- EPS.
"It's possible we could do better than 14 cents, but given the current revenue levels, it's just to early to tell," says a spokesperson. The First Call online reporting service shows a consensus estimate among Wall Street analysts of a 10 cent loss.
The company also expects to cut headcount, now at about 56,000, to a level of about 50,000 by September 30 (its fiscal year end) through attrition, outsourcing, and "other workforce reductions." It's aiming for a breakeven point "slightly below $4 billion" and still expects to return to profitability in 2003.
Lucent hadn't given any revenue guidance on its last earnings call, citing unpredictable market conditions. But now, CEO Patricia Russo thinks it's clear the wireline market in North America's still declining. "Service providers continue to constrain their capital spending to conserve cash," she said in a prepared statement.
Industry sources say that, despite budget constraints, there's some evidence of Lucent headway in technology RFPs that remain outstanding. The company's making a particularly strong showing in DSL competition against Alcatel SA (NYSE: ALA; Paris: CGEP:PA), some sources say. And its LambdaUnite optical platform (see Lucent Lights Up LambdaUnite) seems to be giving the CoreDirector from Ciena Corp. (Nasdaq: CIEN) a run for its money in other RFP situations.
Lucent so far has announced just two wins for the LambdaUnite -- one at a carriers' carrier in Southern California (see Lucent Deploys Multiservice Switch), and one at a CLEC in China.
But analysts say these relatively small wins aren't all that Lucent's got cooking. "LambdaUnite is doing very well," says analyst David Jackson of Morgan Stanley Dean Witter & Co. He expects to see it showing up in incumbent carrier contracts at U.S. RBOCs and with incumbent Western European PTTs.
Lucent's been in the running with LambdaUnite and other optical gear for several lucrative deals with RBOCs, most notably with Verizon Communications Inc. (NYSE: VZ). It's also in field trials with Deutsche Telekom AG (NYSE: DT). These trials continue to be pushed ahead (see Capex Cuts: How Low Can They Go?), but analysts say Lucent's got a decent shot at winning at least one if not both of them. And there are new RFPs popping up that may also be to Lucent's advantage.
"Some contracts are being pushed out, and we see additional evaluation cycles being added. But we're also seeing some additional projects initiated," says Frank Dzubeck, president of Washington-based Communications Network Architects. He says Verizon and SBC Communications Inc. are aggressively planning metro Ethernet rollouts for 2003, for which Lucent may compete.
Dzubeck says Lucent also continues to rake in a decent share of revenue from its legacy ATM and voice products, though he notes that recent news that Lucent was raising its maintenance rates on older voice switches indicates the vendor may see a ceiling on the use of its old stalwart 5ESS-type gear.
Clearly, Lucent's still got a row to hoe. Despite any good reception its products may have encountered so far, the key contracts it needs are still very much airborne. Further, competition is heating up, particularly in the metro Ethernet and next-gen Sonet spaces. And despite the rumored success of LambdaUnite, the company's LambdaRouter seems to have met with lackluster sales, causing some industry speculation that even if it doesn't go the way of the ill-fated LambdaManager high-end switch (see Lucent Pulls LambdaManager), it may continue to be "de-emphasized" by Lucent.
— Mary Jander, Senior Editor, Light Reading