Lucent Loses in Q1 as Expected

Revenues at Lucent Technologies Inc. (NYSE: LU) fell 7 percent in the U.S. and 20 percent internationally as the company reported its first quarter earnings for fiscal 2006 earlier today. (See Lucent Posts Q1 Loss.)

For the quarter, Lucent reported a net loss of $104 million, or 2 cents a share, on revenues of $2.05 billion. This compares unfavorably to the net income of $174 million, or 4 cents a diluted share, on revenues of $2.34 billion it reported during the year-ago quarter. (See Lucent Posts Q4.)

Wall Street analysts expected earnings of 2 cents a share, according to Thomson First Call , but no one was shocked by Lucent's results since the company warned of the shortfall a few days ago. On January 13, Lucent said it expected revenues for the first quarter of fiscal 2006, which ended December 31 2005, to be about $2.05 billion. That was well below average analyst expectations -- $2.44 billion -- at the time.

Lucent shares didn't do much of anything. In midday trading, they were off 0.01 (0.40%) to $2.49. Since the beginning of this year, the stock has been off by more than 7 percent.

The first quarter's losses included a charge of $278 million, or about 6 cents a share, for a bankruptcy court judgment related to the company's litigation with the trustees for bubble-era carrier Winstar Communications. (See Winstar Judgment Hits Lucent for $244M.)

Some analysts point to this charge as the quarter's real problem. "Had it not been for the $278M charge for the Winstar settlement driving the net GAAP loss, pro forma EPS would have actually been the $0.03, we calculate," wrote JP.MorganChase analyst Ehud Gelblum in a note to clients this morning.

Despite being stung by the Winstar lawsuit, Lucent's still making a buck off its bank account for the oldsters (See Pension Concerns Hit Lucent.) The company's net pension and postretirement benefit credit for the first quarter was $104 million, compared with $175 million in the year-ago quarter.

Pat Russo, Lucent's chairman and CEO, says the company expects better times during the second half of this year. (See Pat Russo, Lucent Technologies.) "While we are disappointed to have to change our guidance... we are confident our performance will be much stronger throughout the remainder of the year," she said on the company's conference call this morning.

Russo reiterated that Lucent expects annual revenues "to be essentially flat or to increase in the low single digits for the year." She pointed out several areas of opportunity in the company. These include:

  • CDMA network capacity increases as carriers start adding more wireless data services;

  • "Significant revenue growth" in UMTS during the second half of the year; and

  • More revenue from services as carriers shift to all-IP networks.

On the last point, Russo hinted that equipment vendors, such as Lucent, are trying to look more like systems integrators and consultants rather than box vendors. "Our strategy of investing in and honing our multivendor skills is helping us to capitalize on these opportunities even with customers who don't have Lucent products in their existing networks."

Those "multivendor skills" could bode well for Sonus Networks Inc. (Nasdaq: SONS) and other vendors that were disappointed when Lucent announced its big IMS contracts last year.

Lucent held its gross margins steady during the first quarter at 42 percent of revenues -- the same as last year's first quarter.

But will that stay the same? Yes, thereabouts. Lucent's COO Frank D'Amelio reiterated gross margin guidance on the call of 41 percent to 43 percent for fiscal 2006.

Its operating expenses appeared to be up -- $940 million in Q1 compared to $665 million a year-ago -- but $278 million of that was related to the Winstar charge. Remove that and the company spent $662 million on operating expenses.

Finally, while the revenues are falling and profits are illusive, bonuses and incentives are still going around. As of Dec. 31, 2005, Lucent had $4.38 billion in cash and investments, down $550 million from the quarter ended Sept. 30, 2005. That drop, Lucent says came from "the payment of the company's fiscal 2005 employee incentive awards" and for increased working capital.

— Phil Harvey, News Editor, Light Reading

Lighter-Fluid 12/5/2012 | 4:08:09 AM
re: Lucent Loses in Q1 as Expected
Anyone care to track the number of promotions that Frankie has had in the last 6yrs ?? Now compare that with the average employee...that's still there.

Anyone count the number of financial blunders made by top mgmt (Bellyup aquisitions, Secret Golf Courses, SEC accounting fines...) ?

Is LU still involved with some potentially high dollar court cases ?

looks like people are so fed up with this POS that it's not even worth the time to post....as expected
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