Lucent Drops Its Bottom

Lucent Technologies Inc. (NYSE: LU) today added its warning to a growing list of revenue reduction forecasts. The rash of warnings indicates further fallout from the carrier spending drought, and few analysts are willing to call a bottom on the ongoing downturn.

In today's announcement (see Lucent Projects Downward), Lucent says revenues will drop 20 to 25 percent sequentially for the quarter that ends its fiscal year on September 30, 2002 -- down from $2.95 billion reported last quarter (see Lucent Loses $7.9B, Plans Layoffs). Lucent's earnings report is expected October 23.

Lucent expects to see a pro forma loss per share of $0.45 for the quarter, compared with a pre-tax pro forma loss per share of $0.24 last quarter.

Lucent's shortfall was anticipated by most, particularly after recent comparably severe warnings from ADC Telecommunications Inc. (Nasdaq: ADCT) (see ADC Comments on Tellabs' Warning), Nortel Networks Corp. (NYSE/Toronto: NT) (see Nortel's Bottom Sags), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) (see Tellabs Looks to Europe).

Still, the size of the loss is surprising: First Call analyst consensus had called for a loss of $0.16 per share.

Lucent attributes the shortfall to "continuing market softness and ongoing uncertainty in customer spending levels, particularly in North America." Also, the company says "charges associated with a significant customer financing default this month, and the inability to recognize tax benefits on losses" helped cuts its anticipated EPS. Lucent won't identify the defaulting customer.

Like the thunderclap after a lightning flash, layoffs always follow earnings warnings. Lucent isn't saying how many jobs will go. But as of June 30, 2002, the company had 53,000 employees and predicted about 7,000 of those would need to be eliminated by year end as a part of a plan to reach a breakeven point of $3.5 billion in quarterly revenue, with gross margins in the low 30s (see Will Lucent Win After Warning? and Lucent Warns Again).

Now, the company wants breakeven to fall between $2.5 billion and $3.0 billion. That implies another cut comparable to the one announced in July.

Lucent also has other restructuring plans related to culling its product lines. The company already has jettisoned several products in the last months (see Lucent Terminates the LambdaRouter and Lucent Loses $7.9B, Plans Layoffs). And in a September 6 presentation to analysts, Janet Davidson, president of Lucent's Integrated Network Solutions Group, indicated the process will continue with products including the Wavestar Bandwidth Manager, next-generation DSLAMs, and B-STDX switching equipment, which were highlighted in her slides as playing poorly or at the ends of their life cycles.

Lucent still plans to reach profitability by the end of 2003 and says its latest bad news doesn't affect its credit facility or debt structure. Indeed, Davidson's slideshow depicted Lucent's hopes of gaining 29 percent of a $167 billion worldwide carrier market in 2002. While carrier consolidation and cutbacks will continue, she indicated Lucent's hope that growth will come as carriers ponder moving from circuit to packet network architectures.

At press time, Lucent shares had dropped 8.48% on the news and were trading down $0.14 at $1.51.

— Mary Jander, Senior Editor, Light Reading
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