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

To: Chuzzlewit who wrote (11888)	12/22/1999 9:58:00 PM
From: Mr.Fun	Read Replies (6) \| Respond to of 21876

OK, after the dust has settled, I've had a chance to go through the 10K myself. I've talked to several sell siders. I've taken a deep breath, and in the calm of the evening in my office, here are my observations: 1. G. Geiling at JP Morgan, whom I normally respect, has no real justification for thinking and writing that March could be light. No one at Lucent told him anything like that. No specific customer situations to reference. Just a wild ass prediction that CO switch sales will be down sharply, with Nortel as a reference. No credibility in my book. 2. P. Sagawa at Bernstein actually took the time to take me through Lucent's backlog over the past 4 years. In fact, if anyone had bothered to check, backlog has been coming down for every year of LU's existence, while at the same time revenue growth has accelerated. The key reason is that at the time of the breakup, there were two enormous, multi-year customer commitments (T, and Saudi) that have been worked down since 1996. Most LU business today is not in the form of multiyear firm commitments, but rather memoranda of understanding that sets price and rough volume targets, but not firm product commitments. As a result most new "contracts" only show up in backlog as the customer places specific product orders under the MOU. This makes backlog an absolutely irrelevant measure. 3. Mr. J. Parmalee of CSFB actually uses LU's levels of vendor financing commitments as as a justification for recommending a shift to NT. This is ludicrous, as NT's has similar levels of financing, adjusting for the size of the company. I do not see financing as a problem, as I anticipate that the current robust market for telecom debt will continue for some time. There have been no major defaults on vendor finance contracts. Financing is a fact of life for anyone who wants to do business with the "leading edge" new telcos. 4. I've calmed down about my misunderstanding with LU's controllers office. Credits to Chuzz for getting this more right than me. Nonetheless, I hear that AR DSOs are supposed to be down another 3-5 days - I hope it is not all due to shenanigans. Inventories will be roughly flat sequentially as a hedge against Y2K, but will come down sharply in 2000. Financing on LU's books will be down below $1B. As a result, I believe earnings will more than take care of LU's cash needs (absent acquisitions for cash) so I don't think there will be any need to increase debt to raise cash. BTW LU is pretty proud of having secured debt at very, very low cost in 99. 5. All in all, I stick to my previous forcast - roller coaster ride until we get closer to the quarter, and straight up thereafter. I think this will be an easy double from here to end of fy00.