Good article, David. Here's Bloomberg's take from their website today:
Technology News
Fri, 07 Jan 2000, 11:49pm EST
Lucent's Missteps Set the Stage for Nortel and Ciena to Take Market Share
By Erik Schatzker
Lucent's Missteps May Help Rivals Gain Market Share (Update2)
(Adds details on customers in 18th, 19th paragraphs, lawsuit
in last. Updates share activity.)
Murray Hill, New Jersey, Jan. 7 (Bloomberg) -- Lucent
Technologies Inc.'s lateness in bringing out a new product for
fiber-optic networks is opening the door for Nortel Networks
Corp. to swipe its customers, analysts and investors said.
Lucent's shares plunged 15 7/8, or 23 percent, to 53 3/16 on
the New York Stock Exchange after it issued its first-ever profit
warning yesterday. Lucent cited a delay in its new system that
speeds traffic on telecommunications networks. Today's trading of
more than 179 million shares was the most ever by a U.S. stock.
Nortel, which has been selling equipment like the gear
Lucent failed to deliver, rose 12 3/16 to 97 7/16. Ciena Corp.,
another rival in fiber optics, rose 11 7/8 to 57 3/4.
``There are customers out there who have been waiting for
Lucent,' said Michael Urlocker, an analyst at Scotia Capital
Markets. ``They may get tired of waiting and just hang up.'
Chief Executive Richard McGinn said Lucent was surprised at
how quickly some customers moved to equipment based on OC-192
technology, which is four times faster than the systems the
company now sells. Lucent didn't have its OC-192 product ready in
the fiscal first quarter that ended Dec. 31.
The delay, shortages of other fiber-optic products and lower
software sales caused its profit to fall as much as 12 cents a
share from a year earlier. Sales were almost unchanged.
PaineWebber Inc. analyst Walt Piecyk said he expects Nortel
to take advantage of the demand that Murray Hill, New Jersey-
based Lucent can't fill during the next few quarters.
``Nortel is clearly in the lead with better optical
products,' Piecyk said.
He raised his price target on Brampton, Ontario-based
Nortel, which he rates a ``buy,' to 100 from 72 and dropped his
target on Lucent to 65 from 100. He kept his ``buy' on Lucent.
Shakeup Needed
McGinn will have to shake things up to help Lucent recover,
analysts said. The company needs a product to compete with
Nortel's most advanced fiber-optic equipment and more production
capacity to meet demand for fiber-optic components and cables.
``They'll have to make some changes to address the
manufacturing issues,' said Merrill Lynch & Co. analyst Mike
Ching, who downgraded Lucent to ``near-term neutral' from ``near-
term accumulate.' ``The company has to make sure it has the
necessary capacity.'
Management Changes
Lucent's problems may stem in part from recent changes in
senior management, some analysts said.
Carleton Fiorina quit in July as Lucent's president of
global sales to phone companies to become chief executive at
Hewlett-Packard Co. Her replacement, Pat Russo, is a Lucent
veteran, though she hadn't been involved in sales for a couple of
years when she took the job in October.
``Carly Fiorina was a very important member of the Lucent
management team,' he said. ``Without her watch, communication
with customers on some projects may have gone astray.'
McGinn said yesterday that some phone companies and
corporations delayed purchases in the quarter, reducing sales and
profit.
Piecyk said Lucent also was left weaker when Dan Stanzione
stepped down in October as head of the Bell Labs research
division, which is responsible for developing new products.
Stanzione left for personal reasons and now advises McGinn.
Lacking a product to compete with Nortel's has hurt Lucent,
which lost its lead in fiber-optic equipment sales to Canadian
rival Nortel last year.
Lucent had hoped to ship OC-192 systems in the recent
quarter to waiting customers such as Global Crossing Ltd. It
didn't and now expects to deliver them this quarter.
AT&T Corp., which spun off Lucent in 1996 and still buys a
lot of its equipment, said in November that it was accelerating
its move to OC-192 systems.
`Not Just Bad Luck'
``Someone took his eye off the ball and didn't react
quickly enough,' said Tim Ghriskey, a senior portfolio manager
at Dreyfus Corp. who owns Lucent as part of $4 billion in assets
he runs. ``It was a mistake, not just bad luck.'
Sales of the fiber-optic transmission gear, which includes
OC-192 products, will surge to $41 billion in 2003 from
$9 billion last year, according to RHK Inc., a San Francisco
market researcher.
McGinn said Lucent's fiber-optic revenue increased more than
30 percent in the first quarter and could have been higher.
That's a slowdown from the quarter ended Sept. 30, when sales
rose 40 percent to 50 percent.
Nortel's sales of fiber-optic equipment more than doubled in
the same quarter.
``You have to do well in your high-growth areas or risk
highlighting the fact that your older businesses are experiencing
flat or negative growth,' Piecyk said.
Piecyk and other analysts said Lucent told them on a
conference call yesterday that sales of traditional voice
switches, products for corporations, and wireless gear were
unchanged from a year ago.
Milberg Weiss Bershad Hynes & Lerach, a New York law firm,
said it filed a suit on behalf of investors against Lucent today
in the U.S. District Court for the District of New Jersey. The
suit, which seeks class-action status, alleges that the company
and senior executives made false statements about Lucent's
financial condition and its ability to control costs and keep
profit margins up. |
