Lucent's Russo: Don't Panic!
Lucent Technologies Inc. (NYSE: LU) today announced third-quarter financials (to June 30) in line with the disappointing preliminaries announced a few weeks back. (See Lucent Reports Q3 and Lucent Drags Down Alcatel.)
As the numbers were expected, Lucent's stock was static at $2.08 today, giving the soon-to-be-swallowed vendor a $9.32 billion market capitalization. (See Lucatel Clears Euro Hurdle.)
So with no surprises in the numbers, CEO Pat Russo, who will also be CEO at the giant vendor formed by Lucent's merger with Alcatel (NYSE: ALA; Paris: CGEP:PA), got out her verbal boxing gloves for critical investors and analysts on today's conference call. (See Lucatel: New Team, Old Faces, Lucatel Names More Execs, and Inside Lucatel: Quigley's Not Mad at Pat.)
BIFF! Our CDMA equipment rocks, and makes GSM gear look like a limp weed.
KERPOW!! The fourth quarter is shaping up to be a doozy.
THWACK!!! Our IMS engagements are going great no matter what anyone says.
Okay, so those may not have been her exact words, but read on to hear what Russo had to say as she defended her corner following a slump in revenues, profits, and margins.
As previously noted, the third quarter's numbers were hammered by a dramatic drop in wireless equipment revenues, which, at $827 million, were down $175 million, or 17 percent, from the second quarter's $1 billion, and down 30 percent from a year earlier.
This, it seems, has led some people to speculate that the CDMA infrastructure market, which generates the vast majority of Lucent's wireless revenues, might be heading down the flusher. After all, GSM dominates the world, with about 86 percent of the world's roughly 2.32 billion mobile subscribers connected to a GSM network. (See GSM Hits 2B Users.)
Russo says the CDMA infrastructure market will be worth more than $8 billion in 2006, and will remain steady and probably gain slightly in the coming years. So there are plenty of opportunities in developing markets such as India and in developed markets such as the U.S., where the latest technology upgrade -- CDMA2000 1xEV-DO Rev A -- can provide high-end data services. (See CDMA Carriers Upgrade .)
Indeed, points out Russo, Verizon Wireless is deploying Revision A gear from Lucent, the vendor is helping Sprint Corp. (NYSE: S) with its rollout, and there's further demand in Southeast Asia. (See Lucent Wins Verizon and Telecom NZ Uses EV-DO Rev A.)
She also pointed out that plans by Brazilian CDMA carrier and Lucent customer Vivo Participacoes SA to build an overlay GSM network was not a threat to CDMA market development. It's just a sensible move, said Russo, as Vivo can mop up low-end customers with cheap GSM handsets while targeting sophisticated users with the EV-DO services, and she noted "the inability of GSM to deliver VOIP and other high-end services." (See VIVO Expands.)
And for the killer punch in wireless, "the negative speculation about the CDMA market as related to Lucent is unwarranted."
So the third-quarter numbers "are not indicative of the opportunities we see globally," said Russo. That statement was backed up with the repeated statement, first made earlier this month, that the current fourth quarter would, in revenue terms, be the biggest quarter of the financial year by some ways, if the Revision A deployments and the UMTS wireless build-out at Cingular Wireless go as expected.
When pressed, the Lucent team wouldn't elaborate on what that revenue number might be. So far, Lucent's biggest quarter of the fiscal year was the second quarter's $2.14 billion. The current analyst consensus for the fourth quarter is for revenues of $2.46 billion and earnings of 4 cents per share, though Citigroup analyst Alex Henderson is planning for a 13 percent sequential rise in revenues to about $2.32 billion.
IMS going great guns
Russo was asked about progress at Lucent's IP Multimedia Subsystem (IMS) engagements, as there have been, as one analyst put it, some reports in the trade press that not all is well. (See Lucent Having Dualmode Difficulty?)
"We are not having any problems with trials or deployments. This is a very lengthy and complex process… There's a lot of integration work. It's a critical place to be. It's important to be at the table as other services are planned, where we can pull in our services and optical portfolio."
The IMS business is still small but it's growing, said Russo, who reiterated that Lucent doesn't expect to see any significant revenues from its IMS portfolio until late 2006 and into 2007. She noted that in addition to the nine announced IMS engagements, Lucent has a further 19 ongoing.
"We have nine announced IMS customers, and we're feeling good about the trials and confident we can turn them into contracts. We're accelerating development and expect to see growth in IMS and applications opportunities."
Russo also gave a plug for Riverstone's Ethernet equipment, saying that, along with the Imagenio IPTV delivery system Lucent is now developing for Telefónica SA (NYSE: TEF) and others, it has "greatly enhanced our end-to-end video solution... We expect to see growth as IPTV rolls out." (See Lucent to Spend $207M for Riverstone and Lucent, Telefonica Team on IPTV.)
Of course, it's not yet clear where Alcatel's IPTV partners over at Microsoft Corp. (Nasdaq: MSFT) fit into that. (See Alcatel & Microsoft Going Steady.)
— Ray Le Maistre, International News Editor, Light Reading