Lucent's Bullishness Proves Short-Lived
By Scott Moritz
03/12/2002 09:32
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Lucent LU returned to a familiar theme Tuesday: Wait till next year.
Less than two months after it surprised Wall Street with a stronger-than-expected second-quarter revenue forecast , the New Jersey-based telecom gearmaker backed away from those projections and delayed the long-awaited spinoff of the rest of its Agere AGRA chips and components unit. Moreover, Lucent tabled its forecast for a 2002 return to profit and positive cash flow, saying that it now expects to reach the black next year instead.
Lucent's reversal hardly comes as a surprise, seeing as big telcos have been trimming spending continuously over recent months. That pace of that trend has only quickened in 2002 as funding worries forced renewed spending lockdowns at big spenders like Sprint , WorldCom and Qwest . As the last two years have illustrated rather graphically, when telecom network builders sneeze the big gear companies are inevitably bed-ridden.
Out of Gear? Lucent's clutch rollback
That said, Wall Street wasn't pleased with the company's sniffly comments Tuesday morning; Lucent's strong early-year guidance had made it one of the sector's rare success stories, however lukewarm the praise that was getting thrown its way. Tuesday morning, Lucent shares slipped 17% to $5.19, just above their 52-week low of $5.
While insisting that its liquidity remains "sufficient," Lucent also said it was considering a convertible bond offering. Struggling telcos have recently beaten a path to the front door of the convertible bond market, where investors are enticed by the prospect of steep interest rates and possible conversion into shares. Conversion, of course, dilutes current shareholders, a notion that probably wasn't helping Lucent's stock Tuesday morning. Sprint and Qwest are among the big industry names to have availed themselves of convertible-bond financing lately.
Still, Lucent put on a brave face, saying that its deep cost-cutting would boost revenue even as industrywide spending fell. Lucent and rival Nortel have both cut their workforces nearly in half since the telecom market turned south, in a heart-pounding race to keep reducing expenses in step with free-falling revenue.
"The progress we are making with our restructuring program will enable us to deliver the fifth quarter in a row of sequential improvement in the bottom line," said Chief Financial Officer Frank D'Amelio. "However, large service providers continue to reduce or defer their spending as they rethink their business plans and conserve cash, which is having an impact on our top line." Lucent said second-quarter revenue would rise up to 10% from first-quarter levels; the company had earlier forecast a 10%-15% sequential rise.
Tuesday's reversal is only the most recent setback Lucent has suffered in a long fall from Wall Street glory. Once one of the highest fliers in a fast-growing industry, Lucent plunged into an abyss of red ink, management changes, earnings restatements and regulatory probes more than two years ago; the stock, which once traded well into the $70s, has dropped below the levels of its 1996 IPO.
Wall Street expects Lucent to lose 14 cents a share on revenue of $3.81 billion when it reports second-quarter numbers April 22. A year ago, the company lost 41 cents a share on revenue of $5.33 billion. |
