Oct 22, 2003 12:00 PM,

Lucent turns first profit in three years

By Ed Gubbins

Lucent Technologies reported its first profit in more than three years today, allowing CEO Pat Russo to declare in a conference call, "The worst does absolutely seem to be behind us."

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Beating the consensus expectation of analysts surveyed on Thompson First Call that it would post a net loss of 4 cents per share, the equipment vendor reported a net income for its fiscal fourth quarter (which ended Sept. 30) of $99 million, or 2 cents a share.

Lucent still hasn’t received the missing revenue it expected from an overseas customer of its wireless equipment, which in July forced the vendor to push back its expected profitability to 2004. But that revenue was offset in part by a $50 million sequential revenue gain from Lucent’s optical, data networking and access products.

However, at $2.03 billion for the quarter, revenues were down 11% from the year-ago quarter and fell short of analysts’ expectations, which averaged $2.15 billion, according to Thompson First Call. And Lucent said revenue is likely to be flat or modest through the next fiscal year.

In addition, Lucent cautioned that the impressive 42% gross margins it experienced in the fiscal fourth quarter (without one-time adjustments, the margins would be about 38%, according to Lehman Brothers--still above expectations) would probably fall to about 35% in fiscal 2004. The company’s services business didn’t help gross margins in the fourth quarter, offering 29% margins on $460 million in revenue for the quarter, a 5% sequential gain but a 19% drop from the year-ago quarter,

The company’s restructuring efforts have also come to an end, it said. Lucent cut more than a fourth of its workforce (which now stands at 34,500 employees) in fiscal 2003 and reduced its total operating expenses from $8.5 billion to $2.9 billion.

In a research note disseminated this morning before Lucent’s conference call, Lehman Brothers analyst Steve Levy wrote, "We are encouraged about [Lucent’s] cost reductions but remained concerned about top line growth prospects."