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Optical/IP

Will Lucent Win After Warning?

Lucent Technologies Inc. (NYSE: LU) has reduced its quarterly outlook, predicting a 10 percent to 15 percent drop in revenue when it reports fiscal third-quarter earnings on July 23 (see Lucent Warns Again).

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
http://www.lightreading.com
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Lichtverbindung 12/4/2012 | 10:16:15 PM
re: Will Lucent Win After Warning? You do not mention Lambda Extreme or Wavestar in your article, are these products getting traction at IXCs
Gandalf 12/4/2012 | 10:16:11 PM
re: Will Lucent Win After Warning? Quote from the article: "the key contracts it needs are still very much airborne"
-----------------------------------------------
So how about their wireless program? There is precious little mentioned about the so much anticipated profitability from that division, yet the rumors have it the carriers like the LU solution.
BenGrahamMan 12/4/2012 | 10:16:11 PM
re: Will Lucent Win After Warning? Lucent raved about this product at their November product showcase. Does anyone know if it is getting any traction, etc.

thanks
reoptic 12/4/2012 | 10:16:08 PM
re: Will Lucent Win After Warning? How many times has this company warned in the last 2 years...has there been a quarter without a warning? By know they must be very conservative which means the bottom has truly dropped out of this business. Likely will see a new wave of layoffs and further big shakeout in the industry...how the mighty have fallen.
BobbyMax 12/4/2012 | 10:16:08 PM
re: Will Lucent Win After Warning? The following points are very critical in understanding if Lucent will ever recover:

1. The US economy will not grow more than .5% to 1%. At this rate of growth, Lucent will not recover in the next 10-15 years. Many companies that fall like Lucent, in fact, never recover.

2. Lucent's products have disappeared beyond recognition.

3.Lucent has no cache to facilitate its recovery.

4. Lucent's payroll is still very massive. It still has a lot of unproductive supervisory employees. It has not altered its old way. There is no focus on the products and markets.

5. Lucent's management and marketing infrastructure is extremely weak. Its expenses are still out of control.

6. Its recruitment process stinks. It can not process applications. The recruitmment process at Bell Labs and various other business units used to be the best.

6. Lucent's management simply wants to be employed. It can survive for a while even if the stock shrinks to $1 per share. There is no concern for millions of people who have lost every thing. Retirees will not see a penny of their investment.

7. Very soon Lucent will have to file for bankruptcy.

8. Companies such as Cisco who do not even do know the meaning of the world telecommunication have branded themselves as a telecom company.

9. The wealth of the company has been spent in buying a lot of junky companies in California. I must also mention the name of a company by the name Nexabit that was run by foreigners who cheated the company to the tune of $.75 Billion and possibly more.

jamesbond 12/4/2012 | 10:16:06 PM
re: Will Lucent Win After Warning? BobbyMax writes -

6. Its recruitment process stinks. It can not process applications. The recruitmment process at Bell Labs and various other business units used to be the best.

--------------

Bell Labs is full of those "foreigners" you
seem to hate. Also I completely disagree with
you regarding Bell Labs being best etc. Maybe
few researchers were doing serious relevant
work. BUT MOST OF THESE SO CALLED "Researchers"
were wasting lot of money doing flaky research.
I know because my friends use to work there
as contractors and they tell me what the culture
there was. Huge labs filled with equipments
never used, everybody leaving at 5pm etc etc.


mrtelecom 12/4/2012 | 10:16:04 PM
re: Will Lucent Win After Warning? DT HAS TOLD LUCENT TO TAKE THEIR EQUIPMENT AND GO HOME. I CAN'T BELIEVE LUCENT IS STILL TRYING TO PLAY THAT CARD. THEY LAID OFF 50% OF THER LAMBDA ROUTER STAFF.
lighten up!! 12/4/2012 | 10:16:04 PM
re: Will Lucent Win After Warning? Gee!! if we only had visionaries like this, with such prophetic insights, the industry wouldn't be in this mess today. Where were all these soothsayers 3 years ago? Beating up on Lucent is passe!! All these negative comments is one of the reason why our industry is in such bad shape. From the clueless analysts who make irresponsible comments to folks who are constantly spouting negative things leads the average investor on the street to have less and less faith in telecom. For this industry to heal, we need to change our behaviour in what we say and how we say it... If Lucent fails so will the rest of telecom...
rafaelg 12/4/2012 | 10:16:04 PM
re: Will Lucent Win After Warning? I believe that if BobbyMax is not Harvey, it must be his twin/clone brother...

Geeeez...What a way to generate posts...
sigint 12/4/2012 | 10:16:03 PM
re: Will Lucent Win After Warning?
Whatever the condition of Bell labs right now, one can't deny their contribution to telecom.

Some of the foreign researchers in Bell Labs (yeah, the same ones that Harvey likes to bash), carried expertise with them to their native countries and initiated development in telecom.

This was a research centre which has contributed immensely to standards development, growth of technology, hell, even to research in aspects of humanities related to telecom.

LU management, do you guys want history to remember you as the folks that wrote the epitah for this institution ?
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