Observations about LU's 3Q:
1. LU continues to be extremely bullish for future quarters. They are guiding numbers up for FY2000 by 5-7 cents. The analyst from Bernstein quoted by Reuters yesterday as saying the company would miss expectations for December was horribly misquoted - he continues to be the biggest LU bull on the street (and in my opinion, the best networking analyst, by far). In fact, several analysts had not done their homework, and continued to forcast revenues and earnings according to an out of date model of seasonality. The same problem surfaced after Dec earnings and LU wants to avoid the slings and arrows of lazy analysts more interested in Ibanking fees than in doing good fundamental research.
2. The quarter was phenomenal. Carrier sales were up 27% YoY including better than 50% growth out of optical and wireless. International sales grew 48%, including 66% growth in international carrier sales. Microelectronics grew almost 23%. Gross margins were up. Expenses were down. EPS growth was 56% vs. a year ago. Accounts receivable were down 4 days to 91 DSO. Inventories flat. So much for bears who were afraid that LU had been "borrowing" sales from future quarters in December and March.
3. Ascend perfromance was extraordinary. On a stand-alone basis, Ascend would have shown revenues of $625 million for the quarter, up nearly 25% sequentially and up more than 90% YoY. Undoubtably Ascend extended its market share leadership in both ATM switching and remote access. So much for concerns over morale problems at ASND.
4. Guidance is explicit and strong. Sales growth: 18-20%, FY2000 earnings: $1.52-$1.55 (~28-30% growth), Balance sheet: 5-10 days improvement in AR DSOs next quarter, steady state in the low 80s. I believe the company is sandbagging and already knows it can beat all of these targets easily.
5. Opportunities abound. The company says it is in negotiation with 8 other major carriers for its Softswitch product for Voice over IP. No one has a comparable product - Cisco's Virtual Switch Controller is on indefinate delay. The company is selling DWDM and SONET gear as fast as it can make it. Wireless is growing at a better than 40% rate for the last 2 quarters at a time when key rivals Ericsson, Motorola, and NT can barely muster 10% growth.
6. Lucent is making a big play for MCI/Worldcom and Sprint, traditionally not LU customers. Don't be surprised to see major announcements with these carriers.
Bottom line: There is alot of confusion about LU that will clear as the company does its one on ones with the major institutional investors. It has less Y2K exposure than any major Tech name, it is serving a particular market that is accelerating, and it has tremendous potential for share gain, particularly in deregulating international markets. |
