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

To: The Phoenix who wrote (10271)	10/19/1999 9:41:00 AM
From: Techplayer	Read Replies (1) \| Respond to of 21876

Gary, Good one. brian

To: The Phoenix who wrote (10271)	10/19/1999 9:43:00 AM
From: The Phoenix	Read Replies (1) \| Respond to of 21876

Open... 59 1/4

To: The Phoenix who wrote (10271)	10/19/1999 9:51:00 AM
From: Bindusagar Reddy	Read Replies (1) \| Respond to of 21876

06:25am EDT 19-Oct-99 Salomon Smith Barney (CENA/ROBILLARD LU: Buying Opportunity; Stock Down on Old News THIS ANSWERS ALL THE OLD QUESTIONS RAISED BY STREET.MORON --SUMMARY:--Lucent Technologies, Inc.--Telecommunications Equipment * We continue to recommend LU w/a 1M rating and a $100 price target * We believe near-term & long-term ests remain intact * We believe 3Q99 results will be at or above expectations * DSOs should improve by at least 5 days and inventories should decline slightly QTQ on an absolute basis --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 09/99 EPS $0.49A $0.17A $0.26A $0.28E $1.19E Previous 09/00 EPS $N/A $N/A $N/A $N/A $1.55E Current 09/00 EPS $N/A $N/A $N/A $N/A $1.55E Previous 09/01 EPS $N/A $N/A $N/A $N/A $1.90E Current 09/01 EPS $N/A $N/A $N/A $N/A $1.90E Previous 09/02 EPS $N/A $N/A $N/A $N/A $N/A -OPINION------------------------------------------------------------------- We believe Lucent will continue to be upbeat on its earnings conference call, held at 11am on October 26, on the near-term and long-term outlooks for its business. LUCENT TECHNOLOGIES (1M)- RESULTS DUE OCTOBER 26, BEFORE THE OPEN * We estimate EPS should be $0.28. * Revenue should be about $10.0 billion vs. $8.6 billion last year. * Revenue will be primarily driven by strength in Network Systems due to solid gains in wireless and optical systems. Specifically, sales in optical, wireless, and software should be robust. * Gross and operating margin estimates are 48.0% and 14.4%, respectively, compared to 48.2% and 12.9% last year. * More importantly, working capital management should experience an improvement this quarter with DSOs declining by at least five days, and inventories flat to down relative to the prior quarter. We expect strong results from Lucent, driven by Network Systems, which continues to experience solid gains in the areas of wireless and optical technologies. We estimate that fiscal fourth quarter 1999 EPS should -- increase 34% to $0.28 per share from $0.21 last year. Revenue, in our opinion, should increase to approximately $10.0 billion from $8.6 billion a year ago. Gross and operating margins should be 48.0% and 14.4%, respectively, compared with 48.2% and 12.9% last year, as Lucent continues to benefit from its leading gross margin position combined with on-going cost reduction measures. OUR RATING AND ESTIMATES ON LUCENT REMAN INTACT... ...however, the stock is weak based on a combination of market related issues as well as an Internet website that published an old research report. An Internet website reissued a report published earlier this year regarding Lucent's accounting practices, including rising days sales outstanding, inventory turnover, pension accounting and the treatment of reserves. We believe all of the issues have been well discussed since the Spring of 1997 and does not represent new information, though every so often it is published by someone else trying to look unique. Thus, we continue to recommend Lucent with a 1M rating. DAYS SALES OUTSTANDING Lucent Technologies' collection cycle is less than some of its peers such as Nortel Networks (NT - 2M). Despite having flattened out over the last couple of quarters, accounts receiveable has crept up over the company's historical norm based on its success in growing its international sales--an area where Lucent was at one time 18-24 months behind the competition. In fact, Lucent's international sales growth has outpaced its domestic sales over the last several quarters. We believe Lucent's success overseas is extremely important because 70% of the long-term opportunities in telecommunications are outside of North America. However, the collection cycle is typically longer overseas. Nevertheless, we should see the collection cycle improve by about 5 days in the September quarter after having stabilized in the June quarter despite what should be another strong quarter internationally. INVENTORIES The article claims Lucent's finished goods inventories are unusually high, however, many forget that Lucent Technologies is the "ONLY" company we follow with an "EXTREMELY" conservative accounting policy of recognizing revenue upon customer acceptance as opposed to shipment. In the case of a brand new network or technology revenue recognition can 12 to 18 months after shipment. Every other company recognizes revenue upon shipment regardless of the customers level of satisfaction. We believe inventories in the September quarter should be flat to down in absolute dollars compared to the June quarter. PENSION ACCOUNTING Lucent earlier this year took a one-time gain in order to adjust its pension reserves to better reflect its actual obligations. At the time this occurred, Lucent Technologies went to great lengths to let the Street know that any benefit associated with this event should be treated as incremental to consensus estimates, i.e Lucent was not making the changes to meet the estimates. In addition, everyone treated the pension benefit as a one time gain. RESTRUCTURING RESERVES Lucent at certain times has to make restructuring charge adjustments to better reflect actual events as opposed to estimates made at the time the charge was originally taken. For example, closing plant B rather than plant A would require the reversal of the charge associated with A and a new reserve created for B or the actual charge for B being realized. This movement may be confusing at times but Lucent generally reports the net effect each quarter and most, if not all, analysts are smart enough to look past these one-time events.