Lucent warns of wireless sales slump

Lucent Technologies fired an earnings warning shot after market close yesterday, saying its net income would suffer due to poor sales of North American wireless infrastructure.
Lucent officials said fiscal third-quarter revenues would fall $300 million from the same quarter a year ago to $2.04 billion, and profits would take an even more dramatic downturn, coming in at 2 cents per diluted share versus the 7 cents reported last year.

The news is surprising since--of any market--North America has been Lucent’s bright spot in wireless networks contracts. Lucent has a major piece of the three largest U.S. carriers' 3G rollouts--building UMTS/high-speed downlink packet access networks for Cingular and upgrading its significant CDMA 1X footprint with both Verizon Wireless and Sprint to EV-DO. In addition, both Verizon and Sprint are expected to upgrade their EV-DO networks further this year to EV-DO’s higher-capacity, lower-latency cousin, Revision A. Lucent is all but assured a major piece of both contracts due to its heavy EV-DO install base among both carriers.

But according to Lucent CEO Pat Russo, the Q3 shortfall is due to declining sales in 2G equipment and not based on any concerns over its next-generation network business. She added that declines in year-over-year revenues from China also contributed to the sales slump.

"Overall, our year-to-date results also have been affected to some extent by delays in spending that we believe are attributable to the consolidation efforts of certain customers," Russo said in a statement. "That said, we believe consolidation will lead to opportunities as service providers look to us to help them integrate their large, complex networks."

By Lucent’s own accounts though, some of that network consolidation revenue should already be coming its way. Lucent has been touting its position as a leader in North America on the IP multimedia subsystem (IMS) space, announcing contracts with Cingular, Sprint and several of the RBOCs. While not network integration contracts per se, the deals do involve bridging disparate vendors' equipment and major investments in those operators’ core networks.

Lucent, however, tried to assuage any worries about a continued downward trajectory, saying revenues from EV-DO Rev. A and HSDPA contracts would be coming in the current quarter, making the Q3 drop-off a minor blip.

“We expect investment in both CDMA and UMTS to increase going forward, driven by the introduction of EV-DO Rev A and HSDPA solutions," Chief Operating Officer Frank D´Amelio said in a statement. "As a result, assuming that our EV-DO Rev A and HSDPA rollouts remain on track, we expect that mobility deployments in North America will enable us to make the fourth quarter our highest quarterly revenue period for fiscal year 2006 by a significant margin."

The earnings warning comes as Lucent and Alcatel enter the final stages of their merger plans, which the two companies said today is on track to close by the end of the year. The two companies also announced their final C-level organization chart. While Pat Russo will be CEO of the combined Alcatel-Lucent, Lucent COO D’Amelio will remain in the top flight as chief administrative officer and senior executive vice president for integration. The rest of the top tier will be populated by Alcatel’s executives: Etienne Fogues will be senior vice president of the carrier group and Jean-Pascal Beaufret will be chief financial officer. Alcatel No. 2 man Mike Quigley, however, will not assume the role of COO as expected. Instead he will be president of science, technology and strategy, focusing on making strategic investments in new technologies.