Closing the credibility gap: Can new Lucent CFO repair firm's image?

Lucent Technologies named Deborah C. Hopkins executive vice president and chief financial officer this week - none too soon for Wall Street. Investors hope Hopkins, former senior vice president and chief financial officer of aerospace giant The Boeing Company, can instill discipline into Lucent's financial management and reporting systems and rebuild investor confidence in the world's largest telecom equipment maker.

That confidence was shaken earlier in the year, when Lucent reported a 23% earnings shortfall for its December quarter because of its inability to meet demand for optical networking gear. The company admitted it underestimated demand. Since then, Lucent has taken steps to increase optical system production capacity and address component shortages, but its relationship with Wall Street and its stock price have suffered.

"The most important thing is to establish credible growth objectives that are believable and sustainable," said Steven Levy, telecom equipment analyst at Lehman Brothers. Lucent has stretched to make quarterly numbers for a while, Levy said. "They were pushing the envelope for a year before they fell out of bed [in the December quarter.]" In particular, Hopkins needs to reign in Lucent's accounts receivables and its vendor financing program, Levy said.

"Over the past year, there's been extra scrutiny on Lucent's quality of earnings - the customer financing and payment terms have somewhat degraded," said Nikos Theodosopoulus, telecom equipment analyst at Warburg Dillon Read.

Lucent's financials need a stronger balance sheet, a reduction in days sales outstanding, lower exposure to customer financing, better inventory management and improved cash-flow, Theodosopoulus said.

Hopkins must build internal processes and systems to keep Lucent senior executive management aware of the day-to-day progress of sales and orders, analysts said. Such systems are sorely lacking at Lucent, which contributed to the December quarter disappointment, Theodosopoulus said.

When she joined Boeing in 1998, Hopkins faced a similar situation and won respect for implementing systems to control costs, improving accounting and finance practices and consistently meeting profitability targets. Hopkins, 45, replaces Donald Peterson, who became CEO of Lucent's new Enterprise Networks Group on March 1. Lucent is spinning off that $8 billion business later in the year.

At Boeing, Hopkins recently assumed responsibility for leading a new business incubator called New Ventures. Prior to joining Boeing, she was vice president of finance and chief financial officer for General Motors Europe.