Lucent revises Q1 downward

Lucent Technologies released a double whammy on itself today, lowering its guidance for the fiscal first quarter 2001 and restating its fiscal fourth quarter 2000 earnings downward.

For the first quarter of next year, the company said it will post a loss of between 25 and 30 cents per share, down dramatically from the $1.05 earnings per share from the same quarter a year ago.

According to Lucent chairman and CEO Henry Schacht, “these disappointing results reflect a significant sales decline in North America due to a number of factors, including the overall softening in the CLEC market, a slowdown in capital spending by established service providers, a more focused use of our vendor financing and lower software sales. In addition, and importantly, we’re operating under a cost structure that was built to support a much larger revenue base.”

To help resolve these issues, Lucent announced that it is undergoing an operational review that it says will save company $1 billion.

“We have an aggressive plan to streamline our operations, prune our product portfolio and create a significantly reduced cost structure to seize the market opportunity that is available to us,” Schacht said. “The plan will enable us to achieve improved performance by the end of fiscal year 2001 and growth at or above market rates by the end of fiscal year 2002.”

The company also will be more selective in its vendor financing,. Schacht said the CLEC market will undergo the heaviest scrutiny, with financing focusing on “strategically important areas: UMTS, third generation buildouts in this country of the significant customers that we have been supporting.”

For Schacht, in his second turn at Lucent’s helm, this is all part of a transitional period for the company.

“I’ve been back for 10 weeks and I’ve reached a number of conclusions,” he said. “First and foremost, [Lucent] is a basically sound company which operates in a dynamic and growing market with excellent technology and people and deep customer relationships. But it is a company that has developed serious focus and execution problems.”

Schacht identified the following four major sources for the problems:

• Short-term revenue growth was met by cutting deals that hurt long-term growth

• In 1997, the company organized into 11 units that made it difficult to present one face to customers and offer unified solutions

• Underlying processes and systems were not equipped to handle the growth the company experienced during the tech sector’s boom

• The company missed a growth opportunity by coming to market late with OC-192 products.

Regarding its revised fourth quarter, a revenue review has caused Lucent to lower revenue to $8.7 billion and pro forma earnings per share (EPS) to $0.10. Originally, the company put revenue at $9.4 billion and pro forma EPS at $0.18.

Of that reduction, $125 million is traced to “misleading documentation and incomplete communications between a sales team and the financial organization” regarding a software license. One member of that sales team has since been terminated.

Another $28 million is from the sale of a system that has not been completely shipped, and $74 million is from sales teams that verbally offered credits to be used at a later date but may have been related to fourth-quarter transactions.

The largest reduction--$452 million--results from Lucent taking back unused equipment that had been sold to systems integrators and distributors. Lucent agreed to take back the equipment to maintain good relationships with those customers and “there was some evidence that there may have been verbal agreements that led them to Lucent to do so,” according to a company press release.

Lucent’s announcement were not well-received by Wall Street. At posting time, the company’s stock was down $1.5625 to $13.9375.