Lucent sees profit for third consecutive quarter

Lucent Technologies Inc. turned a profit in its second fiscal quarter, less than in the preceding quarter but an improvement on the loss it reported a year earlier, it announced Tuesday. The company expects revenue to continue to grow this year, it said.

The company reported earnings of US$68 million for the three months to March 31, down on the US$349 million it reported in the preceding quarter, but up from a loss of US$553 million in the year-earlier quarter. Revenue continued its decline, slipping to US$2.19 billion in the most recent quarter from US$2.26 billion in the quarter ended Dec. 31 and US$2.4 billion a year ago.

Earnings per diluted share of US$0.02 include a charge of around US$0.01 per share relating to revaluation of warrants the company expects to issue as part of a global settlement of shareowner litigation, the company said. In the previous quarter, Lucent posted earnings per diluted share of US$0.07, while in the second quarter of its last fiscal year the company reported a loss of US$0.14 per share.

Inventory has crept up over the last six months, from US$632 million on Sept. 30 to US$789 million on March 31.

The company expects to finish the fiscal year in profit, with annual percentage growth in the low single digits, excluding further effects of the revaluation of warrants, it said.

The company will have to look carefully to find even that modest growth, however.

"After several years of dramatic decline, aggregate capital spending is stabilizing," Lucent Chairman and Chief Executive Officer Patricia Russo told journalists and analysts in a conference call.

That stable aggregate spending hides a lot of turmoil in the detail: "Traditional segments (such as circuit-switched wireline telephony infrastructure) are shrinking but others are growing," she said. Spending on 3G (third generation) wireless network infrastructure will likely grow at 15 percent or 20 percent annually through 2006, and that on next-generation optical networks at 10 percent a year over the same period, she said.

Lucent is benefiting from the growth in 3G spending, Russo said, with seven of the eight largest network operators in Europe delivering broadband mobile data services over Lucent's PC Cards. The company has also won infrastructure contracts in Spain, and is seeing interest in its CDMA (code division multiple access) wireless equipment for use in the 450MHz band in Eastern Europe, she said.

While revenue in the company's mobility solutions segment slipped to US$951 million in the quarter, from US$1.1 billion a year earlier, operating income for the segment rose to US$378 million from US$249 million a year earlier.

The company is also pursuing business in nontraditional carrier markets such as Ethernet over Sonet networking, and voice over IP (Internet Protocol), or VOIP. This is essential to counter the continuing decline in revenue from its traditional wireline products.

"There's no line growth going on. The investments that would support line growth are not occurring," Russo said. But, she said, "Wireline is where we see opportunities to grow, in VOIP technology, IP centrex, and residential IP. We see a large opportunity going forward."

In addition to launching new products, Russo is looking for other ways the company can grow.

"Over the last couple of years, doing an acquisition would have been challenging, but we don't rule out, we have never ruled out, a partnership if it would better meet our customers' needs," she said.

Acquisitions are not the only partnerships under consideration. The company is also looking at "OEMing" (original equipment manufacturing) or becoming an integration partner for other manufacturers, she said.

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