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

To: hitesh puri who wrote (9209)	8/18/1999 1:16:00 AM
From: Jack Whitley	Respond to of 21876

<<c) The systems these companies make are not PC boxes where you can snap in a Pentium III, 96 Meg DRAM, 10 Gig drive, 40X CDROM etc. and load Win98. Their Hardware is complex but is not the gating factor. Its the customization of the software for each customer with respect to their unique network, billing system, maintenance, logging, monitoring etc. It sounds scary at first look but you have to dig deeper. These points are always raised by Bearish Anal-cysts when they have no other ammunition and always provide a buying opportunity.>> d) If there are Y2K supply chain issues, it would behoove LU to have inventory on hand. jww

To: hitesh puri who wrote (9209)	8/25/1999 12:58:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 21876

Hitesh, I think some of your comments require some caveats. While it is true that many of the projects LU designs and manufactures require lengthy periods of time, the real issue is one of revenue recognition. In general, revenue is recognized only when the customer is in receipt of goods, or, for major projects, on a percent completion basis. Unfortunately, many companies take liberties with these rules (e.g. NETA and Sequent). These practices often show up as lengthening DSOs. I don't know that such is the case with LU. A large, uncompleted contract which is not subject to percentage completion rules inevitably results in increases in inventory -- remember that the labor is capitalized and becomes part of inventory. Other considerations are the terms of the contracts. My understanding is that it is now commonplace for telecom equipment firms to finance the deals by offering extended payment terms. Ascend was the first company to publicly acknowledge that practice. Specifics aside, increasing inventory and A/R are concerns for two reasons. First, there is the issue of write offs of potentially uncollectible accounts. Second, there is the issue of the amount of capital that must be tied up in unproductive assets. Even if LU is simply following standard industry practices high levels of inventory and A/R are real concerns to financial analysts. Mr. Fun and I discussed this issue at some length a few weeks back. TTFN, CTC