Lucent earnings not all bad

(Telephony) Lucent Technologies reported a net loss of more than $3 billion for its second fiscal quarter, but offered enough good news to cause a mild rally in the company’s share price and convince at least one analyst to upgrade the stock.

The struggling vendor reported a net loss of $3.69 billion, or $1.08 per share, for the quarter ending March 31, compared with net income of $755 million, or 23¢ per share, in the same period last year. The heavy loss was attributed to $810 million in restructuring costs, assets writedowns of $1.9 billion, and a $308 million loss from discontinued operations related to the Agere spinoff. Lucent also took a 15¢ per share hit from losses on vendor financing loans to WinStar and writedowns of certain equity investments.

Excluding one-time items, Lucent posted a pro forma loss from continuing operations of $1.3 billon, or 37¢ per share, compared to earnings of $509 million, or 16¢ per share, in 2000. Revenue declined 18.2% to $5.92 billion from $7.2 billion.

“Very large service providers, even though they may be growing expenditures less or cutting them, are still spending money,” said Henry Schacht, Lucent’s chairman and CEO. “We will be able to moderately increase our sales from the current level next quarter, but we are mindful of the environment we are operating in.”

Pro forma gross margin for the quarter represented 17% of revenue, a decline of 23 percentage points compared with the year-ago quarter. Lucent said gross margins continued to be constrained by a product mix that includes newer products and costs associated with an infrastructure built for a larger revenue base.

“Our goal is to get ourselves back to industry metrics [on gross margin],” Schacht said, declining to mention specific benchmarks.

On a positive note, Lucent reported progress with its seven-point restructuring program. During the quarter, Lucent’s overall net debt was cut by about $300 million to $3.9 billion. Lucent also reduced operational expenses by $75 million, improved working capital performance by $1.5 billion, excluding business restructuring charges and other inventory reserves, and slashed past due receivables by $700 million. Capital spending shrank by $100 million, and inventory levels declined by $275 million.

Lucent said its previously announced work-force reduction of 10,000 employees was on track. About 2,000 employees have already been removed from payroll, with the remainder to be cut by July. About 2,200 contractor positions also have been eliminated.

Vendor-financing commitments, a sore point for watchers of Lucent’s balance sheet, decreased to $6.9 billion from $7.5 billion.

“We continue to monitor the situation, and we are taking a very thoughtful approach to vendor financing,” said Deborah Hopkins, Lucent’s chief financial officer.

Alex Henderson, telecom equipment analyst for Salomon Smith Barney, upgraded Lucent to “outperform” from “neutral.”

“The operating costs are being trimmed faster than expected, and the company looks on track to reach a break-even position within the year,” he said in a report.

Lucent shares rebounded about 10% in late afternoon trading to $10.17 per share.