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Technology Stocks : Lucent Technologies (LU)
LU 2.660+1.1%3:59 PM EST
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To: sylvester80 who wrote (20703)8/26/2002 1:11:53 AM
From: Elroy  Read Replies (3) of 21876
 
2.5B/q break even is doable for LU in 2003.

Well, that's a fine sentence, but.....

1- Management hasn't said anything about lowering the break even to $2.5B, so you are just speculating on your own target rather than what the people running LU are targetting.

2- In order to lower the break even from current levels of $3.5B to $2.5B, LU will have to fire a ton of people, and each person fired requires significant severance costs in terms of cash, and as LU burns its cash, it heads closer to bankruptcy by violating covenants of its outstanding debt.

3- Even if they do lower the break even to $2.5B, that's only a 14% decline from current revenue run rates. It's not that hard to see revenues declining 20% AGAIN next year given the state of the service providers.

So plenty of scenarios lead to LU going bankrupt. The only one that doesn't is that service providers begin increasing spending on equipment, and that IMHO is the LEAST likely scenario. I predict that at the end of this year NO MAJOR US service provider will indicate that they will spend more in 2003 that they did in 2002, and many will predict 2003 to be significantly lower than 2002 levels.

And then LU will go bankrupt.

Elroy
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