Lucent has lots of product and financial vaporware.
I know that the telecom industry is very wary of LU, and I think that this bodes well for CIENs future and for increasing sales of DWM and their new products. Long term, CIEN will do OK, because they have substance not vapor with some substance. If LU is only growing their revenues 3% per year, their customers are not very happy with them, because this industry is growing a lot faster than that. If you back out their domestic international sales, their growth is really absysmal.
MARKET WATCH April 11, 1999 NYT
Taking the Shine Off Lucent Earnings
By GRETCHEN MORGENSON
Long ago, in a galaxy far away, investors examined companies' financial statements with a sharp pencil and a gimlet eye. The quaint exercise assured them that corporate earnings were solid and that no surprises were ahead.
Back on Planet Earth, few investors sharpen pencils today. One who does is Robert Olstein, a 30-year veteran of financial analysis who manages the Olstein Financial Alert mutual fund. He picks stocks with high-quality earnings, avoiding or betting against those whose gains result more from accounting cleverness than from actual sales. Since its inception in 1995, the fund has returned 24.5 percent annually, on average; it is up 5.3 percent this year.
Lately, Lucent Technologies, a leader in communications systems, has caught Olstein's eye. It closed on Friday at $63.625, or 54 times 1999 estimates, and is up almost 16 percent this year.
"Lucent is a great company," Olstein said, but not the growth company investors think it is.
The company's latest numbers seem to support him. In the quarter ended Dec. 31, sales rose just 5.5 percent from the corresponding period a year earlier. But Lucent said that lag from the 14 percent sales growth it showed in 1998 was a result of deferred sales that would appear in second-quarter numbers, due April 22.
Even if that report astounds, Olstein points to other areas that make him fret about Lucent's growth. For instance, during the past two years, Lucent has written off $2.5 billion of research and development that had been in the pipeline at companies it acquired. Charging such expenses to earnings makes future income look better than that in earlier quarters when the expenses were paid. Securities and Exchange Commission Chairman Arthur Levitt has worried that companies may use such write-offs to manage earnings.
James Lusk, Lucent's controller, said that the company is highly conservative in its bookkeeping and that accounting rules required it to take these write-downs.
As for Lucent's $480 million revenue increase in the latest quarter, Olstein said that about $200 million came from reconsolidating its folded joint venture with Philips Electronics. In his view, revenue from continuing operations showed only 3 percent growth in the quarter. Meanwhile, accounts receivable and inventories were up 43 percent and 46 percent, respectively.
A Lucent share earned $1.06 in the quarter, before the effects of an accounting change. Olstein computes this as a gain of 20 cents a share over the same period last year, after adding back research and development write-downs to that quarter's earnings.
Even then, Olstein reckons that 19 cents of the 20-cent increase came from three items: another accounting change, a lower tax rate and a smaller allowance for accounts unlikely to be paid.
Finally, Lucent's income has been helped by the roaring stock market. Shares held for employees' pensions created a credit of $558 million last year, fully 14.6 percent of pretax income before the write-offs.
"Eliminate all this stuff, and maybe you're not paying 54 times earnings. You're paying a lot more," Olstein said. "But nobody cares about risk until they lose money."
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