Lucent tops revenue projection, predicts profits
- 23 January, 2002 08:05
Troubled telecommunication-equipment maker Lucent Technologies Inc. said Tuesday that revenue for the first quarter of its 2002 fiscal year, ending Dec. 31, was slightly better than its own expectations, with losses narrowing.
Company officials stressed that the company was taking steps to further reduce losses and boost margins, and forecast a return to profitability by the end of the year.
On a pro forma basis, Lucent's revenue was US$3.5 billion for the quarter, as compared to $3.8 billion posted in the same quarter a year earlier, the company said in a statement. That would indicate a year-on-year decline of 8 percent. The figures provided excluded the results from Lucent's fiber-optics business, which was sold during the quarter, as well as the proceeds from the sale. Business restructuring and one-time charges also were not included.
On Dec. 14, the company adjusted its projected revenue for the quarter downward to between $3.1 billion and $3.4 billion, and on Tuesday it said it had beaten those expectations.
Lucent's pro forma loss for the quarter amounted to $799 million, or $0.23 per share, on the low end of a Dec. 14 projection of between $0.23 and $0.26 per share.
Analysts polled by Thomson Financial/First Call predicted Lucent losses of $0.24 a share in a consensus estimate for the quarter.
Including, among other things, proceeds from the sale of its fiber-optic business and other one-time items, Lucent reported a loss of $465 million, or $0.14 a share, on revenue of $3.6 billion for its first quarter.
The past quarter will prove to have been the low point of the current financial downturn, the company predicted, adding that in the second quarter, "we expect our top line to improve approximately 10 to 15 percent and our bottom line to improve at an even greater rate."
The company said it is continuing to make "significant progress" in its restructuring plan, having eliminated 15,000 jobs during the past quarter through a combination of layoffs, outsourcing, sale of business units, and attrition. Lucent employed 62,000 workers at the end of 2001, and expects to have somewhat less than 55,000 employees by the end of June.
The company also expects to rid itself of some bad lending practices by cutting back on vendor financing -- essentially loaning money for other companies to purchase Lucent equipment. Many smaller startup companies died in the financial earthquakes of 2001, sticking Lucent with the bill for equipment.
Lucent has reduced its vendor financing commitments to $2.5 billion from $5.3 billion since Sept. 30.
Gross margins for Lucent improved by about 1 percent over the previous year, but at 13.7 percent for the first quarter Lucent still labors below a level needed for profitability. Lucent slashed its equipment prices over the past few quarters, reacting to competition from other large telecommunication equipment providers and to dangerously high inventories of gear piling up.
Carrier spending cutbacks didn't help last year and won't help this year, either. Most major U.S. carriers like AT&T Corp., SBC Communications Inc. and WorldCom Inc. said they would reduce their expenditures on capital equipment like network switches in 2002.
While companies count on advances in technology to spur customers into buying more equipment, the same advances threaten to make unsold gear on the shelves appear obsolete. With older equipment gone from the storeroom, Lucent can move forward with newer equipment that can be sold at greater profit.
"We believe margins in the 20's are available to us this quarter," said Frank D'Amelio, Lucent's executive vice president and chief financial officer, in a conference call with financial analysts Tuesday morning. With the market still difficult to predict, D'Amelio could not firmly commit to reaching that goal, however. Lucent is aiming for margins of 35 percent in 2003, he said.
Lucent's new offerings like the Lambda Unite and Lambda Extreme switches due for release later this year target the largest 20 carriers in the world, said Henry Schacht, Lucent's chairman, on the conference call. These products answer the carriers' need to create a single network carrying data and voice traffic, while increasing revenue from their existing equipment.
"It is the theme song of the major network service providers worldwide," he said.
Lucent executives said the company expects to be profitable and to achieve positive cash flow by the end of 2002.
Lucent remains committed to spinning off its Agere Systems Inc. optical components business in a public stock offering this year. To do so, it must meet its bankers' requirements for overall corporate financial health as measured by earnings before accounting for taxes, interest and amortized debt and depreciation, D'Amelio said. Lucent must also see a reasonably favorable market for the offering, D'Amelio said.
Lucent aims for an Agere public offering after March, presuming it can meet the bankers' financial goals in the second quarter. If Agere is spun off before the end of June, Lucent will receive tax benefits for the sale under an arrangement with the U.S. Internal Revenue Service. Lucent will seek to amend its terms with the IRS if it can't spin off Agere before then, D'Amelio said.