Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Techplayer who wrote (7512)	4/22/1999 9:36:00 AM
From: Diamond Jim	Respond to of 21876

Opened at 62 7/16, up from 59 1/8 close yesterday.

To: Techplayer who wrote (7512)	4/22/1999 9:51:00 AM
From: KYA27	Read Replies (2) \| Respond to of 21876

Lucent's Profits Beat Forecasts On Broad Strength NEW YORK (Reuters) - Lucent Technologies Inc. (NYSE:LU - news), the world's largest telecommunications-equipment maker, said Thursday that second quarter profits, excluding charges, more than doubled, beating Wall Street expectations, as revenues increased 33 percent. ''This was an extremely strong quarter for Lucent both inside and outside the U.S. and across our businesses as the company added more than $2 billion to the top line,'' Chief Executive Richard McGinn said in a statement. Lucent also reiterated its bullish profit and revenue growth forecasts for 1999 and said it would sell its U.S. sales group that targets small and mid-size businesses to a newly formed company led by Susan Mandl, the current chief executive of Newcourt Communications Finance. Terms of the sale were not disclosed. Murray Hill, N.J.-based Lucent's net income increased to $442 million or 16 cents a share, compared with net income of $29 million or 1 cent a share a year ago. Both quarters included acquisition-related charges. Excluding the charges, Lucent's profits increased to $457 million or 17 cents a share, compared with $186 million or 7 cents a share a year ago. The results topped Wall Street's expectations of 15 cents, according to market research firm First Call, which tracks analysts' estimates. Lucent has beat Wall Street's earnings expectations every quarter since it was spun off from AT&T Corp. (NYSE:T - news) in 1996. Second quarter revenues increased 33 percent to $8.220 billion, compared with $6.184 billion in the year-ago quarter. The second quarter revenue growth followed a shortfall in the first fiscal quarter, when a problem in finalizing some contracts forced the company to delay the recording of some revenues until the second quarter. Lucent, which plans to acquire data networking company Ascend Communications Inc. (Nasdaq:ASND - news), said its quarterly profit growth was driven by higher revenues, improved gross margins and a change in its tax rate. Lucent reiterated it is on track to increase fiscal 1999 revenues by 19 percent to 20 percent and earnings per share by about 35 percent, excluding one-time events. During the second quarter, Lucent equipment sales to telecommunications companies increased by 40 percent over the year-ago quarter to $5.149 billion, driven by sales of wireless phone systems, and optical and data networking systems. Sales of equipment to businesses increased 15 percent versus the year-ago quarter to $1.987 billion. Microelectronic or chip sales increased 21 percent over the year-ago quarter to $851 million, driven by sales of optoelectronics components and customized chips for high performance communications, data networking and computing. As a percentage of revenue, gross margin for the quarter improved to 47.4 percent from 44.4 percent in the year-ago quarter, reflecting a more favorable mix of more lucrative products and improved performance of multiyear contracts. Selling, general and administrative expenses (SG&A) accounted for 23.1 percent of revenues in the quarter, compared with 24.3 percent in the period a year-ago. Research and development (R&D) spending, excluding one-time charges, increased 22 percent over the year-ago quarter from investments in high growth areas such as wireless, data networking, optical networking, switching and microelectronics.

To: Techplayer who wrote (7512)	4/25/1999 12:06:00 PM
From: Techplayer	Respond to of 21876

WARBURG DILLON READ "Wall Street Tech" is the email newsletter on Telecom Equipment and Data Networking from Warburg Dillon Read LLC (WDR).LU: REPORTS STRONG FISCAL 2Q99 Summary: Lucent reported 2Q99 EPS from ongoing operations of $0.17 which exceeded our estimate of $0.14 and the street consensus of the $0.15. The upside to our estimate was higher than expected revenues, primarily Network Systems, and higher than expected operating margin. We are increasing our 1999 and 2000 estimates to $1.21 and $1.47 respectively from $1.18 and $1.45. We maintain our buy rating on the stock and have a new price target of $72 (up from $62) or 45x our calendar 2000 estimate of $1.60. Highlights: Lucent reported 2Q99 EPS from ongoing operations of $0.17 which exceeded our estimate of $0.14 and the street consensus of the $0.15. The upside to our estimate was higher than expected revenues, primarily Network Systems, and higher than expected operating margin. The company continues to expand overseas as overall international sales grew 61%, an acceleration of the year over year growth experienced in the past two quarters of 43% and 50% respectively. Revenues of $8.220B exceeded our estimate of $8.0B and was up 32.9% over last year. Network Systems revenues were up 39.9% over last year with US sales up 28% and international sales up 83%. Excluding $550M in software sales that we estimate were deferred from the prior quarter, Network Systems sales were up 25% which is still a very strong number. Excluding these deferred software sales, however, US sales were up about 10% while international sales still grew 83%. Business Communications Systems (BCS) sales were up 15% with US sales up 10% and international sales up 34%. While this met our estimate, we were expecting sales to actually show growth closer to 10%. We believe, however, that sales will slow in the future quarters to the 10%-15% range. Microelectronics revenues were up 20.7% in line with our estimate. Microelectronics continues to show growth faster than the industry average. Operating margins of 10.4% exceeded our estimate of 6.8% and were up over the 5.1% reported last year. Gross margin of 47.4% exceeded our estimate of 46.0% given a favorable product mix and the positive impact of deferred software sales. We continue to view operating margin expansion as a critical part of the Lucent investment thesis and expect operating margins to continue to expand over the next several quarters. We believe Lucent can achieve at least 16% operating margins in the future on an annualized basis. We are increasing our 1999 and 2000 estimates to $1.21 and $1.47 respectively from $1.18 and $1.45. We maintain our buy rating on the stock and have a new price target of $72 (up from $62) or 45x our calendar 2000 estimate of $1.60. Analysis: The following table summarizes the revenue performance in the quarter: Division Rev. WDR Est % of Sales YOY Growth Network Systems $5.249B $4.860B 62.6% 39.9% BCS $1.987B $1.990B 24.2% 14.9% Microelectronics $851M $846M 10.4% 20.7% Other $233M $300M 2.8% NA TOTAL $8.220B $7.995B 32.9% Network Systems Sales Up 40% Driven By International The following table summarizes the performance of Network Systems in the quarter: Revenues YOY Growth 2Q99 US $3.712B 28% 2Q99 Intl. $1.437B 83% TOTAL $5.149B 40% 2Q99 US Excl. $3.162B 9%-10% Deferred SW sales* 2Q99 Intl Excl. $1.437B 83% Deferred SW sales 2Q99 US YTD $7.924B 0% 2Q99 Intl YTD $4.030B 74% * - In the 1Q99 December ended quarter, Lucent deferred revenue recognition of about $800M in primarily software sales. We estimate about $550M were recognized in 2Q99. As shown in the above table, Lucent is deriving most of its growth from international markets as its large market share in the US has limited growth. We expect Lucent's domestic sales growth to accelerate beyond the 0% growth seen so far in 1H99. The main drivers for this growth will be volume shipments of the Wavestar 400G DWDM system to AT&T and other US customers, shipments of CDMA wireless equipment to Sprint for phase three of the Sprint PCS network, and shipments of TDMA wireless equipment to AT&T. International sales should continue to remain strong as Lucent gains share overseas. The major opportunity for 1999 for Lucent is the CDMA network opportunity in China within the Unicom network. With regard to product areas, wireless and optical networks products grew faster than the group average of 40%. These two businesses continue to be the main drivers of Lucent's growth and should remain that way in 1999. Communications Software sales also showed strong growth but this was partially driven by the acquisition of Kenan Systems during the quarter. Traditional switching and access products also grew but less than the corporate average. Fiber cable products also resumed growth after a tough year in 1998. Pricing has stabilized in this business and a mix toward premium fiber has helped sales growth. BCS Sales Up 15% - Expect Slowing Trend Going Forward BCS sales grew 14.9% with US and International sales growing 10.3% and 33.8% respectively. As with Network Systems, Lucent continues to grow its business overseas as its large market share in the US has capped growth. Year to date, sales have grown 6.9% in the US and international sales have growth 14%. We have seen slowing across multiple equipment suppliers in the Enterprise market which we believe has and will continue to impact Lucent. We have revised our sales growth forecast from 15% in future quarters to 12%. Microelectronics and Other Microelectronics revenues grew 20.7% over last year to $851M. Sales in the US grew 4.3% and represented 44% of sales while international sales grew 38% and represented 56% of sales. Microelectronics continues to grow above the industry average for semiconductors as the company. This is due to Lucent's focus on communications chips such as optoelectronics components and customized chips for high growth segments of the communications industry. Other revenues of $210M primarily consisted of revenues from businesses regained from the PCC venture. We expect one more quarter of revenues from the PCC venture to be consolidated into Lucent's results as the remaining businesses are likely to be sold by the September quarter. Balance Sheets Still Needs Some Work The balance sheet did not show an improvement from the December quarter, but we did not think this was likely this quarter. Traditionally, the March quarter results show weakening balance sheet metrics and this was the case again this quarter. AR DSOs increased to 97 days from the 91 days experienced in the December 1998 quarter. Historically, Lucent's DSOs have ranged in the 65-85 day range. In the past two quarters, however, DSOs have been 91 and 97 days respectively. The increase in DSOs in our opinion are due to an increasing percentage of sales overseas which carry longer payment terms. In addition, an increasing amount of business with CLECs and other emerging carriers is also probably putting some pressure on DSOs. We believe that Lucent will be able to reduce DSOs in the future as the company has increased its focus on this issue. We believe, however, that the range of DSOs in the future will not go down to the traditional range but rather stay in the range of 85-95 days. Inventory turns were 4.0 which were down from 4.7 turns in the December quarter. Lucent claims to be accumulating inventory to meet strong demand for products in the second half of the year. Cash declined to $792M from $940M from the December quarter while debt increased to $6.901B from $6.167B. This suggests that the company likely generated negative cash flow from operations in the quarter. We would look for this to improve in the future. New Estimates and Target Price of $72 We are slightly increasing our estimates to $1.21 from $1.18 for fiscal 1999 and to $1.47 from $1.45 for fiscal 2000. Given the strong performance in the quarter and the good visibility for the Network Systems business we maintain our Buy rating. We are raising our target price to $72 based on 45x calendar our calendar 2000 estimate of $1.60.