Lucent's Vision Further Impaired
By Scott Moritz
Senior Writer
01/07/2002 02:32 PM EST
Lucent (LU:NYSE - news - commentary - research - analysis) came to the
proverbial fork in the road and decided to retrace its steps.
In a move some call a lost opportunity, Lucent concluded its nearly year-and-a-half
search for a CEO by naming its former head of operations and current Kodak
(EK:NYSE - news - commentary - research - analysis) COO Patricia Russo to the
top job.
Defying pressures from some investors and industry experts who wanted to see
fresh ideas and new blood atop the once-promising New Jersey networking
colossus, Lucent's Chairman and interim CEO Henry Schacht instead handpicked
his successor to ensure that his restructuring plans are implemented, say analysts
and investors.
Wall Street viewed the news almost as a nonevent; shares of the
networking-equipment maker rose a mere 13 cents after the open Monday, only to
fall back to $7, down 10 cents, or 1.4%, in midday trading.
Soporific
The ho-hum reaction stems in part from disappointment among some who wanted
to see the former Wall Street darling return to its 1996-98 glory days as the primary
supplier to a vast global network rebuilding effort. While Russo is widely viewed as
a superb manager who inspires loyalty, Lucent, in effect, appears to have turned its
back on bold reinvention by choosing to stick with a far humbler plan of coddling a
few dozen favored customers, say some dismayed Lucent watchers.
"Short term, this is mildly positive as Lucent finally
secures someone to oversee the rebuilding of the
business," says Lehman Brothers' Steve Levy.
"But long term, I have concerns about how Lucent
gets back to being a growth company." Levy
turned bullish on Lucent last summer after being
one of the company's more dogged critics.
On the positive side, Lucent finally resolves its
CEO hunt, which was set in motion with the departure of Rich McGinn in October
2000. One of McGinn's last official acts before he was canned was to help push
Russo out the door. In April 2001, Russo landed the No. 2 job at a flailing Kodak.
Lucent's appointment of Russo, a seasoned veteran of the telco sales wars, turned
superpessimist Friedman Billing Ramsey analyst Susan Kalla positive on Monday.
In her upgrade to accumulate from sell, Kalla said Russo understands Lucent's
"strengths and limitations."
And at least one major investor thawed a bit on Lucent on Monday. Bill Trent, who
runs the pension fund investments for New Jersey state employees, said he was
shifting from a negative outlook to neutral on Lucent, and doubling his fund's
position in the company.
"It appears that there were no candidates out there that were significantly better, so
in that sense, at least, they have a CEO now instead of a interim CEO," says
Trent.
Settling
Hopes that Lucent would land a marquee executive from General Electric or Intel
gradually faded as Schacht dramatically pared the company down and jettisoned
nearly all unprofitable initiatives, not to mention about half of the company's
workforce. It was thought that Schacht's shrinking vision allowed little room for a
successor to make his or her mark.
Lucent was also embroiled in too much failure and controversy to be able to attract
someone major from outside the industry, says Tom Lauria, a former Wall Street
analyst and now consultant with Avtera Management, an industry advice shop.
"And there was certainly an argument that Lucent needed more of an external
influence," says Lauria.
Lucent's entire top ranks, with the exception of its treasurer -- Martina
Hund-Mejean -- comprise career Lucent employees.
In fact, says Lehman's Levy, some investors had personally urged Schacht to look
for an outsider to fill the slot. Schacht clearly wasn't listening, and now investors
probably will be treated to more of the same from Lucent.
"Without fresh blood at the senior management level, Lucent runs the long-term
risk that usually accompanies inbreeding," says Levy. "In other words, stagnation
and the lack of innovation." |
