Analysts: Lucent's Problems Are Its Own

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Lucent’s financial woes are a “big step backward” for the company but they don’t mean the telecom industry rebound has fizzled, analysts at Deutsche Bank Securities (DB) said.

On Tuesday, the Murray Hill, N.J., equipment maker warned it would lose 6 cents to 8 cents per share on revenues of about $1.97 billion in the third quarter (an 18 percent drop in revenues compared to the second-quarter). Official results will come July 23.

The company also pushed back its profitability point into 2004 (previously, Lucent expected the milestone by the end of this year).

“Our mobility revenues were unfavorably impacted by some reduced spending in North America and an unexpected network acceptance delay,” Lucent CFO Frank D’Amelio said. “These two items accounted for virtually all of the decline.”

DB analysts were disappointed with Lucent’s performance.

“The pre-announcement is a big step backward,” DB analysts George C. Notter and Cobb H. Sadler wrote in a research note to investors this morning.

DB speculates that North American business was hurt by reduced Verizon Wireless orders. And the late order acceptance probably came from Reliance InfoComm, DB said.

Given that, it’s unwise to be overly pessimistic view of the entire industry, which after two abysmal years is starting to scratch its way back. Motorola yesterday posted better quarterly numbers but cut its forecasts for the year.

“We don’t think Lucent’s (warning) will be symptomatic of the industry for June quarter results,” DB said, adding that
the problems cited by D’Amelio are “Lucent-specific.”

Nortel, for example has seen some positive signs and others appear likely to hit conservative Wall St. predictions.

Lucent can rebound from its poor quarter, if issues with Verizon Wireless and Reliance are resolved. There are also signals of improved business from Asia-Pacific, DB said.

But to reach profitability it may have to reduce its workforce more. DB thinks Lucent, which has 38,500 workers, will need to end the year with 31,000. Previously, the company had said it wanted to get to 35,000. Recent transfers of some research and development activities offshore could also help, DB said.

Other analysts, like Erik Zamkoff at the Independent Research Group, say Lucent is fighting an uphill battle as carriers continue to watch their spending. He doesn’t expect Lucent to be profitable until the third quarter of 2004.

“Recent partnerships with Cisco and Juniper highlight (Lucent’s) strategy to be more of a system integrator, yet they also illuminate holes in its product portfolio,” he said.