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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (8969)	8/2/1999 1:34:00 PM
From: GVTucker	Respond to of 21876

Chuzzlewit, RE: It appears that McGinn is fixated on expanding LU's presence in networking rather than creating a more efficient operating structure. This is the opposite strategy from IBM's, where Gerstner first cut internal inefficiencies and then sought to reinvent the company by moving more heavily into services. From a strictly financial point of view, Gerstner's strategy makes much more sense to me, but I am not sure that McGinn's strategy is necessarily wrong-headed if he now takes the time to focus on operating efficiencies. When I think of perhaps the finest CEO of the current times, Jack Welch, and think of what he has done with a far greater challenge, I conclude that there is no reason why a great CEO couldn't attack both issues with equal vigor.

To: Chuzzlewit who wrote (8969)	8/2/1999 1:35:00 PM
From: Mr.Fun	Read Replies (1) \| Respond to of 21876

Chuzzlewit, I suggest considering efficiencies in two inter-related categories: Capital efficiency and Cost efficiency. The first category, as we have been discussing, is improving after IMHO insufficient management attention. However, Mr. McGinn has made dramatic improvements in cost efficiency, all the more remarkable given the burden of its balance sheet. Since 1995 - the first year in which Lucent financials are available - the following is true: - Sales growth has accelerated from 11.5% to better than 19% annually, - Gross margins have improved more than 500bp from 43.7% of sales to better than 49%, - SG&A expenses have fallen 400bp from 25.4% to 21.4% - Tax rate has fallen 600bp from 41.1% to 34% - Return on Assets has improved 300bp from 5% to 8%+ Your assessment that T was the source of inefficiencies is spot on. Remember, T did not manage all of its equipment businesses as one group - LU inherited an organization rife with redundancies. I dare say Rich McGinn has earned some of his compensation from slashing the dead wood from the bell days. That said, my contacts suggest that there are still significant opportunities to improve gross margin and SG&A even further. Certainly efforts to reduce AR DSOs to the low 80's and improve inventory turns to better than 5 should yield improvements to COGS and SG&A, not to mention making the organization even more responsive to customers. Early on, LU management articulated its challenge as "5 simultaneous equations" 1) Improve gross margins, 2) sustain or grow investment in R&D, 3) Reduce SG&A (target remains 17.5% of sales), 4) Reduce tax rate, 5) Improve ROA (target remains 10%) Now it appears to be adding a sixth - Improve operating cashflow.