Still buying? Lucent cuts raise bankruptcy concerns
By Jonathan Moules in New York
Published: October 11 2002 14:08 | Last Updated: October 11 2002 14:08
Lucent Technologies, the ailing telecommunications equipment supplier, on Friday said it had lost access to $2bn in credit lines and would cut 10,000 more jobs, raising concerns that the company will have to seek bankruptcy protection.
New Jersey-based Lucent said it had cancelled its $1.5bn credit facility, which was due to expire in February 2003, and its $500m accounts receivable securitisation vehicle to avoid a default on its financial covenants.
The move removes a potential safety net for the lossmaking company, which further cut its breakeven target to $2.5bn from $3.5bn on Friday, implying that fiscal 2003 revenues would be down 20 per cent year on year. Lucent's $4.4bn cash reserves, which the company hoped would help it through its current troubles, will be undermined by a $1bn charge announced on Friday to pay for the latest redundancies.
Frank D'Amelio, Lucent's chief financial officer, said that despite this month's heavy cash burn the company expected to have cash balances of about $2bn at the end of fiscal 2003.
He added that Lucent was in the process of negotiating new credit lines. However, this task was made more difficult on Friday when Standard & Poor's, the credit rating agency, lowered its credit rating on Lucent to B- from B and placed the company on credit watch with negative implications.
Bruce Hyman, S&P credit analyst, said: "Continued cash consumption at this rate is unsupportable."
Chris Fischer, senior analyst at Raymond James, warned that bankruptcy "is not out of the question".
Observers were surprised by the extent of the latest redundancies, which will shrink the workforce to 35,000 people. Lucent, which employed 106,000 people in January 2001, was expected to cut the headcount to about 40,000 staff.
Although Lucent said it would try to further cut its breakeven target, the new goal misses Wall Street's consensus revenue forecast of $2.3bn for this quarter, according to Thomson Financial First Call.
The latest restructuring would widen this quarter's previously forecast pro forma loss by up to 20 cents per share, Lucent said. The company will also record a $3bn charge to equity due to the decline in pension assets from the fall in stock markets.
Shares of Lucent, which have fallen 92 per cent in the last year, sank below the $1 mark last month. In afternoon trade on Friday they were down 0.3 per cent at 70 cents.
Last month Lucent warned that it would see a quarterly decline in fourth-quarter revenues of up to 25 per cent from $2.95m.
Patricia Russo, Lucent's chief executive officer, said: "We will play to our core strengths in optical, circuit and packet switching, mobility and network operations software, and increase our focus on services." |
