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Lucent announces $1 billion loss, layoffs

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Lucent bundled its plan to restructure the company with its report of a $1.02 billion first-quarter loss. The restructuring will result in the loss of 10,000 jobs, the company announced Wednesday.

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The telecom equipment maker reported the pro forma loss for its first fiscal quarter ending Dec. 31, 2000, which also translates into a loss of 30 cents per share, the company said in a statement. That compares to an earnings profit for the same period last year of $1.08 billion or 33 cents per share, the company said.

Lucent's first-quarter report is 3 cents below the consensus projection of 22 analysts of a loss of 27 cents per share, according to First Call/Thomson Financial.

The restructuring plan, which is intended to slash $2 billion in costs, will bring layoffs representing about 8% of its work force, Lucent said. Lucent will be taking a one-time restructuring charge of up to $1.6 billion in its second fiscal quarter, the company said.

Pro forma revenue from continuing operations also took a hit, with Lucent reporting first-quarter revenue of $5.84 billion for the first fiscal quarter of 2001, down 26% from $7.91 billion in the first quarter of last year, Lucent said.

The company hopes to improve its working capital with job cuts, the elimination of product lines and associated write downs, Lucent Chairman and CEO Henry Schacht said during a conference call on Wednesday. He emphasized Lucent's need to perform in order to dig out of its financial hole, and said that hiring will continue in its high-growth areas. "This is a transition year for Lucent," he said. The "vast majority" of people losing their jobs at Lucent will be notified by February 15, and all will be notified by early March, he added. "We will eliminate as many jobs as possible by attrition."

In addition to the 10,000 employees who will lose their jobs, another 6,000 employees at Lucent's manufacturing facilities in Columbus, Ohio and Oklahoma City will move outside the company when Lucent sells the facilities to outsource manufacturing, executives said. Wednesday's announcement also excludes the upcoming spinoff of its Agere microelectronics unit, which has about 16,000 employees.

"Lucent's problem in life has always been its overhead, and this is a direct shot at its overhead," said Frank Dzubeck, president of Communications Network Architects. He said the changes that will be necessary, like automating the company's supply chain management and streamlining production, are significant and will take time, a sentiment jibing with the company's assertion that the financial effects of the restructuring won't help Lucent's bottom line until the second half of the fiscal year.

The Murray Hill, New Jersey company warned last month that its first-quarter losses would be wider than expected. Lucent blamed the shortfall on an overall softening in the competitive local exchange carrier market, slowdown in capital spending by established service providers, lower software sales and a more focused use of vendor financing.

The tale of the rise and fall of Lucent demonstrates the fast-moving nature of today's financial markets. "This company was once the darling of Wall Street," said Lawrence Orans, an analyst for high-tech research firm Gartner Group. "The cracks have been showing for a year or so now." He said Lucent was particularly hurt by its investments in competitive local exchange carriers (CLEC), financing their equipment purchases on the assumption that as they became profitable the loans would be repaid. The CLECs were hit with the same thing that hit the dot-coms - an emphasis on immediate profitability - and their losses trickled up to Lucent, Orans said.

The once high-flying Lucent was spun off from AT&T in September 1996 and quickly emerged as an important player in the networking and telecom equipment markets. But that all changed when the networking market went sour at roughly the same time that Lucent experienced the fallout from some missteps, including being late launching an OC-192 product based on the SONET standard. That led to lower revenue than expected and decreased margins in the optical business, officials said in October of last year when the company announced it had fired Chairman and CEO Rich McGinn and that fourth-quarter earnings would be disappointing.

Soon after that, the company restructured top management to integrate sales and service and said it would cut jobs. In December, an investor filed a federal lawsuit in New Jersey alleging that investors were misled between Oct. 10 and Nov. 21 of last year when the company first reported its fourth-quarter earnings and then downgraded them. The suit alleged that McGinn was motivated to report inflated revenue and earnings to try to keep his job, which was imperiled.

The IDG News Service is a Network World affiliate.

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