Lucent wireline income surges

Lucent Technologies turned a profit in its wireline business (which it calls INS) on essentially flat revenue there, posting a $64 million income for the segment in its third fiscal quarter after posting a $12 million loss there in the second quarter.

Though Lucent’s INS business remained its least profitable segment during the quarter, no other segment came close to matching the INS group’s $76 million sequential increase in income. Income from Lucent’s mobility business, whose revenue sank 2% sequentially to about $1.17 billion in the quarter, remained essentially flat from the second quarter, at $406 million. And income from the vendor’s services business climbed $42 million (or 73%) to $99 million in the quarter.

INS revenue rose only 1% sequentially to $592 million during the quarter, a 12% decline from the year-ago quarter. Lucent attributed the rise in INS income to higher gross margins and lowered expenses. The higher margins came chiefly from sales of new metro optical equipment, Lucent said. While revenue from broadband access and voice networking slid slightly, optical revenue rose 18% to $195 million in the quarter.

Lucent also attributed the rise in wireline income to its long-standing efforts to trim costs and headcount in that segment’s weakest areas. Lucent’s headcount--30,800 as of June 30--has dropped by 1000 since the beginning of the year and by 200 in the last quarter alone.

Revenue in the INS segment has been dropping for years (10% in fiscal 2004), but the segment’s income more than tripled last year to $345 million. In April, Lucent announced it was combining its wireless and wireline units into one group called “Network Solutions.” The move would allow the company to standardize new products across both wireline and wireless product groups, the company said at the time. “If we’re developing an Ethernet card, we’re developing it for every platform we have, as an example,” Lucent chief executive Pat Russo said on today’s earnings call.

To further trim expenses, Lucent is also looking for additional opportunities to outsource manufacturing through additional partners specializing in electronics manufacturing services (EMS), company executives said on today’s call, though most of Lucent’s manufacturing operations are outsourced to EMS partners already.

Overall, Lucent reported earnings of $0.05 per share, slightly better than most analysts’ expectations, on $2.34 billion in revenue, essentially flat sequentially. Lehman Brothers analyst Steve Levy called Lucent’s results “solid” in a research note issued before the earnings call.

When asked about the burgeoning market for IMS, or IP multimedia subsystem--a hot topic of late--Russo stressed the importance to Lucent of staying patiently but actively engaged with customer trials to line up revenue opportunities for next year and beyond. “It’s a footprint game,” she said. “It’s about building the footprint for the future. We’re not yet seeing a whole lot of spending in IMS-related elements. We’re seeing some compact gateways, some applications, and we’re getting some revenue from that today. But we’re in the early spending cycles. We’ve not yet seen any kind of mass rollout or deployment of VoIP over IMS. I think these are revenues in ’06 and ‘07.”

“The way you have to work to participate in this game is through trials,” she said. “And you could be in trials working with a customer for a year. It’s the nature of the business.”