Forbes is bullish on LU CFO: Hurricane Debby
Lucent's once-golden reputation on Wall Street is now tarnished. A new chief financial officer is making a whirlwind effort to restore it.
Hurricane Debby
forbes.com
By Katarzyna Moreno
MY BACK HURTS, MY BACK HURTS," says Deborah Hopkins, looking perfectly fit mock-limping around a conference table at Lucent Technologies' Warren, N.J. offices. The company's new chief financial officer suffered through an uphill bike ride the day before with her teenage daughter, who was fresh off a three-week Outward Bound trip.
Hopkins is on an adventure of her own. The 45-year-old took the number three job at the world's largest telecommunications equipment maker in late April, with crises erupting on all fronts. Lucent's sales growth has suddenly and unexpectedly slowed, its credibility on Wall Street is dismal and its high-profile optical networking products lag rival offerings from Nortel and Ciena.
Now it's up to Hopkins to get the Murray Hill, N.J.-headquartered company back on solid financial footing. She has to mend fences with big institutional investors and Wall Street analysts who feel betrayed, and identify poorly performing product lines for elimination.
The role of turnaround artist usually falls on the shoulders of the chief executive, in Lucent's case 54-year-old Richard McGinn. But investors have lost faith in the boss, who has been at Lucent and its predecessor for 22 years. "We don't trust Rich McGinn. We trust Hopkins, but what can she do? She is just a CFO," says Mark Herskovitz, a portfolio manager at Dreyfus Corp. who dumped his entire position of 925,000 Lucent shares after July.
Lucent's wheels began coming off in January when, after 13 consecutive quarters of 30% or better 12-month earnings growth, it missed its earnings estimates and lowered growth estimates for the upcoming months. Hopkins came aboard only two months before McGinn again lowered expectations for the rest of the year. The stock, now at 40, is less than half what it was in December. Institutional shareholders have fled. Lucent made up 1.2% of all large-cap growth-fund holdings as of June 30, 1999, according to Morningstar. A year later, that percentage is 0.5%.
Hopkins will have to draw on every trick acquired in her rapid-ascent career. In prior positions at Unisys and Boeing, she stepped willingly into the role of troubleshooter while never hiding her ambition for a higher office.
Hopkins started out modeling and selling clothes for Saks Fifth Avenue but, because finance paid better, she got a bachelor's degree in accounting in 1977 from Walsh College in Troy, Mich. After a quick stint at Ford, she spent 13 years at Unisys, rising from the financial analysis department to corporate controller. "She kept asking me to put her in an operating position," remembers Unisys' then-chief executive, James Unruh. Hopkins got her wish, running the business consulting division for two years.
She wanted experience at a bigger company, so she left Unisys in 1995 for a duller job as GM's general auditor. She parlayed that into the chief financial officer position with GM Europe in early 1997. After nearly two years she jumped to the chief financial officer job at Boeing. Just a few months earlier the aviation giant had suffered its first loss in 50 years. One of her first moves was to comb through its myriad business lines to learn which made money and which could be cut. Then it was her job to sell the restructuring plan to Boeing's work force. She got a rousing ovation after a speech to line workers at Boeing's manufacturing floor in Everett, Wash.
"I'm not into a short-term fix," Hopkins told a local Seattle newspaper. But 14 months later she lit out for Lucent, despite the fact that she was in the running for Boeing's presidency. Once again the job-hopper moved cross-country with her two teenage children and husband, David, an ex-marketer at Unisys and GM. McGinn's offer was too rich to pass up: a $4 million signing bonus, plus 650,000 options, now deeply underwater, and 120,000 shares of restricted stock.
Hopkins' first task was to repair relations with Wall Street. Five days into the job she began making the rounds, visiting 65 Wall Street analysts in one day and Fidelity Investments the next. This was in marked contrast to her predecessor, Donald Peterson, who had delegated most daily financial management tasks. Steven Levy of Lehman Brothers, one of Lucent's most vocal critics, came away mollified. "She knows how to listen," he says.
In mid-August she presented the company's managers with her "realized profit" program. Each of Lucent's 95 products and services will be judged on its return on capital invested. Previously, Lucent had only overall profit-and-loss statements from its two divisions (not counting the spun-off business-phone system and soon-to-be-spun-off microelectronics units). So many of Lucent's products are sold internally to other divisions that it was often impossible to distinguish how much revenue each generated, let alone the cost required to produce it. Hopkins hired Marakon Associates, a Stamford, Conn. consulting firm, to cull data from millions of sales transactions. She predicts a working plan will be in place in October.
Hopkins has no qualms about calling for the phase-out of underperforming product lines and perhaps some layoffs. Some managers will realize they can't keep up with Hopkins' raised expectations. "People will say, 'Oh, my God, I need to get out of this building.' And that's fine," she says.
Hopkins also intends to stop Lucent's sales reps from giving away the store. In the past, Lucent's salespeople were rewarded for the ability to bring in revenue and profits at the gross margin level. Largely ignored were the hidden costs of installation, training and interest on loans to customers. As a result, return on assets for the nine months ended June dropped to 4% from 10% a year earlier. Under Hopkins' new plan, salesmen will know and be compensated for their ability to manage all these operating costs. "It will be impossible to hide," says Hopkins, matter of factly.
As ambitious as this one is, a financial officer can do only so much to cure an engineering weakness. Lucent's 10-gigabit optical switches are about three years behind Nortel's, whose optical networking group grew 150% in the June quarter.
Hopkins burns to run a company. Her trajectory looks a lot like that of Carleton Fiorina, the ex-Lucent sales chief now running Hewlett-Packard. But bean-counters-turned-chief-executives are still fairly scarce. Hopkins has a lot to prove as an operator and strategist before she can make the final ascent. |
