Lucent stock falls on lower revenues

Lucent Technologies' stock was tumbling this morning after the equipment vendor revised its 2006 revenue projections downward.

Lucent said this morning that lower sales in the U.S. and China would drive down its revenues for the first quarter of 2006 by about $380 million from the fourth quarter of 2005, and overall 2006 revenues would be flat or increase at only a single digit pace. Previously, the company had anticipated mid-single digit growth.

In a prepared statement, Lucent Chairman and CEO Patricia Russo called the change "a temporary setback to the progress we have made" and said she was "confident" Lucent's performance in the last three quarters of 2006 will improve.

UBS Securities attributed the shortfall to slower mobile equipment sales, both in China and with Verizon Wireless, Lucent's major U.S. customer.

"In [the]U.S., potential cutback in [Verizon] capex as well as decline in EV-DO sales were likely the cause of weakness while Chinese carriers waiting for 3G buildouts in 2H06 along with a possible slowdown in CDMA net adds at China Unicom were the cause in China," the company stated in a research note issued this morning. UBS also noted that Lucent derived 25% of its fiscal 2005 sales from Verizon Wireless and that exposure. UBS analysts Nikos Theodosopoulos and Saud Masud concluded that Lucent's problems are not indicative of the entire industry.

Investors greeted the news by driving down Lucent's stock price as much as 10% in the electronic trading before the opening bell of the stock market. By mid-morning the price had rebounded to $2.55, or about 6% down.

Telecom industry analyst Jeff Kagan called the news "concerning," particularly because Lucent is struggling at a time when service provider capex is growing.

"Apparently the big shifts that are occurring in the industry are not having a positive impact on their sales," he said. "Ten years ago Lucent was very important as a telecom equipment supplier, but as the years pass, and as the industry moves toward IP and wireless-based technology, they face more competition."

Nortel Networks' stock also fell about 4% this morning.

Continued struggling by the former telecom giants is likely to fuel speculation of consolidation within the equipment sector. One industry analyst, Clifford Holliday of Information Gatekeepers Inc., has already predicted 2006 as the year when vendor consolidation occurs.

"We have felt for some time (since the telecom/Internet blowup of 2000) that there are too many major equipment vendors in the US.," Holliday wrote in his post at www.igigroup.com. "We just think that the market is too small to support Lucent, Nortel, Siemens, Alcatel, Fujitsu, Ericsson and the others. We predict that either one or more of the large, traditional telecom vendors will be involved in a major merger, or will leave the U.S. market."

Carrier consolidation exacerbates the oversupply problem, Holliday said in a telephone interview. "Because of mergers, the actual number of customers has gotten very small," he said. "Only so many vendors can win an RFP--there are definitely too many major vendors still around."