Buying opportunity for ADCT.
See last paragraph. Although given LU's recent history, I hate to think that its warning will cause a sell off in ADCT or JDSU. (As if the last couple of months have not been a sell off).
biz.yahoo.com
Morningstar.com
Lucent Bags Investors Again
By Jay Ritter
What Happened?
Lucent Technologies (NYSE: LU - news) said Tuesday that it will report significantly lower-than-expected earnings for the September quarter. The company expects to report sales of $9.4 billion and earnings per share of $0.17-$0.18, well below the $0.27 consensus estimate and down from $0.24 in the prior-year quarter. The firm blamed the shortfall on weaker-than-anticipated revenue and profits in optical systems, increased bad-debt reserves, and a bigger- than-forecast decline in both sales and profits in its traditional voice switching equipment business.
What It Means for Investors
After Wednesday's inevitable sell-off, we think Lucent shares are likely to represent dead money for investors until some new catalyst appears. Possibilities might include changes in management, more visible progress in the optical systems business, and favorable buzz surrounding the spin-off of the fast-growing microelectronics unit in January.
Management failed to offer convincing evidence that the long-awaited turnaround in its high-end optical systems business is near at hand. Unlike last quarter, when the issue in optical was mainly a lack of manufacturing capacity, the big problem now is apparently Lucent's trouble garnering key customer approvals and orders. Nortel (NYSE: NT - news) dominates the high-end market and, with much higher volume, is by far and away the market leader and low-cost producer. Having largely missed out on a major new product cycle, a key question will be Lucent's ability to compete on a more even footing in the next generation of equipment. While it's probably too early to call, we wouldn't bet against Nortel at this point.
The news is likely to result in further damage to the telecom equipment group and broader technology sector Wednesday, even though Lucent's problems appear to be mostly self-inflicted. However, credit quality issues involving some of the weaker emerging carriers will undoubtedly have at least a minor impact on other companies as well. Given the telecom equipment industry's extremely favorable long- term prospects, we believe investors should use any sell-off in Nortel, JDS Uniphase (Nasdaq: JDSU - news), or ADC Telecom (Nasdaq: ADCT - news) as a buying opportunity.
Jay Ritter can be reached at jay_ritter@morningstar.com.
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