Lucent Hits Low End Of Range Set In 1Q Profit Warning
January 20, 2000
Dow Jones Newswires
By JOHNATHAN BURNS
NEW YORK -- Despite posting its second-largest quarter ever in revenue and net income, Lucent Technologies Inc. (LU) still came in below analysts' revised expectations in earnings per share for the first quarter of fiscal year 2000.
The Murray Hill, N.J., company said it recorded $9.905 billion in revenue in the first quarter vs. $9.842 billion a year ago. Net income excluding one-time events was $1.175 billion, or 36 cents a share, versus $1.523 billion, or 48 cents a share a year ago.
In early January, Lucent guided estimates of its fourth-quarter performance down, saying it would miss the then consensus view of 54 cents, and set a new range of 36 cents to 39 cents a share.
A First Call/Thomson Financial survey revealed analysts revised their estimates to the low end, but not to the bottom, with the consensus being 37 cents.
"I don't think people will say it's a two-time miss," said Wachovia Securities analyst George Hunt. "They said it would be in that range, and they were in a quiet period when everyone was revising their numbers."
Lucent Chief Financial Officer Don Peterson told Dow Jones Newswires in early January that Lucent had "hit a bump in the road."
Company executives said then and repeated Thursday that they believe production problems and deployment issues will be corrected by the end of the second quarter.
The company also said market conditions are robust and that demand for the world's largest telecommunications equipment company's products is great.
When issuing its profit warning, Lucent said it did not anticipate customer demand for more advanced products in the fiber-optic area.
"They got beat to the punch pretty dramatically in that area by Nortel Corp. (NT)," Hunt said. "You've got to respect a company that takes blame on themselves instead of blaming the market. By the end of the year, I expect Lucent will close the gap."
Hunt agreed with other analysts who said the company must regain its credibility with investors.
"I think the majority of why they missed was due to lack of optical products," he said. "But they still make good products."
Analysts estimated Lucent missed as much as $400 million in optical equipment sales due to production problems. They also projected the company missed as much as $300 million from decreased software sales - mainly blamed on a lack of competitive local exchange carrier spending - and lost as much as $300 million in wireless equipment sales when an unidentified European service provider cut back on its equipment order.
As a result, Wall Street fled the stock in early January when it was trading close to $70. The resulting bail-out to $52 sent Lucent's market cap down by more than $55 billion in the next day's trading.
On Thursday, Lucent's shares closed at 53 5/8, up 2 1/2, or 4.9%, on the NYSE. At about 5 p.m., Lucent shares traded at 52 1/2.
"I think, at this price, it's a buy," Hunt said. "This is Lucent - they have incredible access to research and development spending."
Lucent executives, who began a conference call with analysts about an hour after releasing earnings, must now boost confidence in the company.
"The issue now is whether they can convince the Street that they can make the turnaround beginning in the third quarter," said Michael Geran, analyst with Pershing division of Donaldson Lufkin & Jenrette. "Basically, they were in line with the revised expectations. Their shortfalls were where they were expected to be."
After its profit warning earlier this month, Lucent Chief Executive Richard McGinn said he expected a strong second half of the year.
He said he expects the company's fiscal 2000 earnings to increase 20% to 25% from the year-earlier's profit of $1.20 a share.
Hunt said one key event to watch in the second quarter is Lucent's shipment of OC-192 product, which substantially boosts the speed at which data travel over fiber-optic networks.
"They should be shipping that in February," he said.
Nortel has already begun deploying OC-192 capability.
Generally, though, analysts expect Lucent to perform well in the fiscal year as the optical networking arena explodes due to upgrades by data and Internet service providers.
Spending for optical-network equipment, which is a part of Lucent's business, is expected to surpass $21 billion in 2003.
- Johnathan Burns; Dow Jones Newswires;
201-938-2020;johnathan.burns@dowjones.com |
