Lucent unveils new restructuring plan

Lucent Technologies Inc., the struggling networking giant, announced Thursday that it would break even in 2002 and reach industry-standard growth levels in 2003. But until then, more layoffs are expected.

As part of a restructuring, the company will invest heavily in five key areas: intelligent core and metro optical technology; multi-service core, edge, and access packet data solutions; technologies that let customers migrate from circuit- to packet-based networks; 2G (second-generation) and 3G (third-generation) wireless networking; and management software for those systems, said Bill O'Shea, Lucent's president of corporate strategy and business development.

Lucent also plans to intensify its focus on large, well-funded customers, partly because of the failure of the CLECs' (competitive local exchange carriers') unwillingness to purchase equipment, according to O'Shea.

"Scale's going to count again," O'Shea said. "People that have the customer set, the scale in their networks, and the financing to build out their networks are the ones that are going to be the most successful."

In particular, Lucent will concentrate on its top 30 customers, which provide 75 percent of the company's revenue, O'Shea said. The plan also includes heavily serving other players in the 20 countries in which those 30 top customers operate, as well as 20 other countries adjacent or connected to the 20 core countries.

Moreover, Lucent plans to divide its sales efforts into the wireline and mobile markets, reflecting its customers' fragmentation along those lines.

Although Lucent expects its overall market to decline by 5 percent to 10 percent, by 2003 the company is targeting revenue growth of 10 percent to 12 percent per year and 35 percent growth in gross margin, said Frank D'Amelio, the company's CFO. The second half of this year is expected to be slightly more profitable than the first half, D'Amelio said.

Until 2003, an additional 15,000 to 20,000 layoffs are planned. On Thursday, Lucent notified 2,200 of its U.S. staff, and 1,000 additional, that U.S. layoffs are scheduled by the end of the quarter. Lucent has already shed some 61,000 to 66,000 staffers through layoffs and the sales of Agere and its optical fiber business, as well as two contract manufacturing facilities.

"We're going to be a smaller, somewhat leaner company," O'Shea said.

The large carrier and service provider markets, which represent 55 percent of the company's overall revenue, will remain flat until 2002, according to O'Shea. But he echoed D'Amelio's statement that a turnaround could happen in 2003.

"The networks are starting to be run hot, and at some point customers will have to build out their networks to satisfy the demand they're seeing," he said. "The end-user demand is still there -- it's clearly softened, but it's still growing. We doubt that we'll ever see the 25 to 30 percent growth rates that we saw previously, but it's a solid industry with a solid business, and there's plenty of room for us to operate."

The company is already implementing its Phase 2 restructuring plan and has the financing in place to carry out its plan, according to Henry Schacht, Lucent's chairman and CEO.

"We are in execution mode now," Schacht said.

No major product announcements were made during the briefing, but a "completely new" optical product line will be launched during the next few quarters, O'Shea said. More details on the company's upcoming product lines will be available in the first week of November, according to Schacht.

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