Here's a loose transcript --- all errors mine, also all omissions.
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Lucent CC, October 23, 2000
Comments on the resignation of Rich McGinn and the future of Lucent. Strong words about there being one CEO and his being on the job full time while the search for a new CEO is carried out. Meetings with management and employees will begin tomorrow.
4Q results fell below expectations.
Pro forma of 600 M or .18 eps, vs. 768 M. or .24. Revenues up 14.6% y/y. EPS declined 9.8% y/y.
Optical business with FO was down 26% and flat for the year. 250M in 10G but fell short of goal.
Optical networking without fiber was up 41% intl, 48% in ILECs, and 38% in CLECs. One customer was down 980M. Now have 15 customers for OC-192 products.
Optical fiber had great year. 61% for quarter and ? for year. Switching declined. This had a big impact on gross margins. Gaining momentum and expanding beyond traditional basis.
Concluded contracts with SBC for Project Pronto.
Internet infrastructure business is strong. Driven by core, edge, and broadband sales. 2M DSL ports. Data business grew more than 100%. US up 3.4%, 10.9% for year. Decrease in sales to one customer who was down 48% y/y. 7.6% out of US for quarter and 6.5% seq.
Cost and expenses. 39.2% gross margins. Due to decreased volume and margins in optical switching, expansion in overseas. . . SG&A expenses were 14.7% increase y/y. Receivables impacted SG&A.
R&D were 1 billion, 11% of sales. Optical, wireless and Internet will continue to be our focus. OP margins were 10.2% vs. 14.5% a year ago.
Balance sheet, Accounts rec. $10.1billion. 500M reserved for bad debt.
Strong credit assessment program. Evaluate customers on a case by case basis. We evaluate reserves on a quarterly basis. Same with vendor financing. $560 on customer debt. In Sept 2000 LU installed a corporate trust. Provides capability to monetize loans without credit risk. Inventory increased 480M.
Guidance:
Pro forma will decline about 7% vs. year ago and 22% sequentially. Affected by issues we’ve covered. Deployment of OC-192 system. Rev. impact of realignment. GMs about 1 pt. lower than Q4. Expenses will be up seq. b/c of investments in high-growth areas.
Break even on pro forma basis in Q1 2001. Limiting guidance to Q1 because of changes being made. Expect sequential improvement in each quarter of 2001. It will be a year of re-building.
Consolidation of services in November. By end of first Q sales resources will be realigned. Systems engineers will be moved closer to customers to enhance fiber optics and other high-growth businesses. Will invest in optical and 3G wireless.
Q&A:
Q: In switching business, declining GMs because of that business. Also on vendor financing, will they be going up b/c of competitive issues?
A: Vendor financing, as we look to UMPS we have potential increases in that arena. We are continually moving loans back into the market space. Key is velocity. Margins, switching and optical contributed to decline. (not F.O.)
Q: Board made decision re: McGinn leaving. What is most important skill set for new CEO? 10G increases?
A: We did about 500 . We fell short of the 750 goal. Not sig. increase in optical arena. This is a turn-around. It is going to be sharp and quick and effective. We need someone with wisdom and vision and operating experience.
Q: Give overall dollar impact for FY2000 for two big customers that led to revenue decline. Can you quantify that? How big were they? Optical component inventory, you built up in Dec. quarter. Do you still need components to meet demand?
A: Two large customers, they are both close to a billion in revenue for 2000, as I look into 2001, the first quarter is the largest y/y impact from foreign contract. Domestic contract will be lower but not as much as this year. Inventory, that will be a key area of focus. Expect to report better inventory situation in December.
Q: Microelectronics will be spun off. . . (asking for valuation guidance).
A: Because we are in registration, I can’t give specific guidance. Looking at market place could be good indicator.
Q: Q1 guidance, impact of realigning sales force, is it an expense? Restructuring charges?
A: Sales side, sales and services, services arena I’m excited about --- bringing together professional services and customer services. There will be impact. It will be on the revenue side of equation. New head of NA, Bill Nelson. Moving resources closer to customer. Esp technical resources. Restructuring side, we’re not leaving any opportunities uncovered at this point. We are being aggressive, doing portfolio review of value by every product and service by region and customer. Key is to make sure we’re investing in high-growth opportunities. This is key focus. Collapsing headquarters of service provider group as well as corporate. Also product management team. Looking at real estate. Nothing will be left unnoticed or unexamined.
Q: Two large customers resp for 2b shortfall, what did they contribute? Will rest. Include bad write-offs?
A: We don’t detail customer details. We’re still in middle of restructuring work.
Q: Optics, not expecting increase in Q1, if you’re “almost there” why is there no increase? What is head count? You told us decline in two customers, it would help if you told us what they contributed.
A: Foreign contract is over. We are winding it down. Headcount is 125,000 incl micro, excluding this it is about 109,000. Optical side, we are making progress on 10G systems. Have 15 contracts now. Are moving along. These are network build-outs and will take time. Older optical products will be falling off. We’re paying for the fact we were late.
Q: Large domestic customer, how much in dec. Q is attributable to that customer? What is outlook for next quarter?
A: Foreign contract moved away. Domestic contract they were previously in 10% customer list and this year they won’t be when we file out 10-K.
Q: Need to focus on execution, what specifically should we be looking for?
A: We’ve spent last 24 hours going over what’s needed. [Lists what’s been started. . .] You can measure progress by our performance as we move through coming months.
Q: Elaborate on expectations on wireless and whether lg. Customer will impact you. Data networking growing 40%, what are expectations for Q1?
A: They were growing at such a clip, so we don’t see that as a significant slow-down. Very favorable market. Wireless side, we see 15% in 2001. Billion dollars in Q1 last year. Growth in future.
Q: In restructuring, any headcount reductions?
A: Very focused on targeting activities I laid out earlier. It may involve people.
Q: Pricing by business business? Is there a change in vision of optical domain? What percentage of sales force and what impact?
A: ATM-optical core: what we see happening customers building core networks built on high-speed, with core ATM. That will continue. We are seeing the beginning of the ultimate conversion to IP on optical core. ATM first b/c of multi-service and QoS. Core will ultimately be IP long-term. Customers are going through that conversion.
Q: What about Metro?
A: This is the next big thing. We invested in Chromatis. They have a leading position. That end-to-end offering will be strong.
Q: Sales force?
A: We’re looking at redeployment of resources closer o customers. Technical and engineering to help customers. Will position us stronger for growth. It will cause some disruption for the current quarter. Pricing impacted in three areas: optical, switching and wireless.
Q: When you went public, idea was Bell abs established products, what went wrong? How will things change?
A: Issues were on execution, not on development of product, not on understanding strategy. Issues were execution on detailed management as we get to market. We have process issues as to time to market. Also we missed in optical. We developed parallel abilities with acquisitions. We also have a cost issue and we’re working hard in this regard. There is so much you can do that we may be spread thinner than we want to be. Planning process with portfolio review will help us bring sharpness to decisions.
Q: Views of vendor financing and what went wrong?
A: Accts receivable, nothing’s gone wrong. We had a couple customers with issues. Vendor financing, nothing’s gone wrong either. Focus is how we go forward. . . we have to run it like a bank. We have a new treasure joining us next week.
Q: Update on employee turn-over situation? 20% in Feb and Jan, high teens later. . . What makes you believe you’ll have seq. growth next year.
A: Turnover is 20%. We’ve got forecasts for rest of the year. I want to understand all of it. Not wise to go any further than we’ve gone at this time.
Q: Silence on microelectronics is totally due to registration and none of 3Q weakness? Any other customers who are in the billion plus range that have declines we’ve seen?
A: Large customer was in 10% group and visibility was there. Foreign contract was discussed. Micro --- you’re right. It is b/c of registration process.
Q: Employee retention, particularly in optical networking and data networking.
A: We’ve looked at key people and will help them understand opportunities. We’re looking at ways to keep key people. |
