Lucent: A second warning

Lucent last week dropped another bomb by disclosing plans to lop another 10,000 positions in light of “significantly” larger losses looming for its fiscal fourth quarter.

Lucent last week dropped another bomb by disclosing plans to lop another 10,000 positions in light of “significantly” larger losses looming for its fiscal fourth quarter.

Lucent last month had already warned that fourth quarter revenue would be down 20% to 25% from the third quarter, and that the per-share loss would be in the 45-cent range. This was already down “significantly” from Wall Street estimates of a sequential revenue drop between 5% and 10%, and a per-share loss of 16 cents.

Now Lucent has issued a second warning, predicting a loss of up to 65 cents per share while maintaining its previous guidance on revenue. The large loss is due to $4 billion in charges to be taken in the fourth quarter.

Lucent rival Nortel also issued two warnings on its current quarter.

“It’s been commonplace for all high-tech companies to issue mid-quarter warnings, but now we are seeing a second set of warnings, which reflects the day-to-day nature of the telecom industry crisis,” says Bill Lesieur, director of Technology Business Research in Hampton, N.H.

As a result, 10,000 more heads will roll. This means Lucent’s workforce will number 35,000 by the end of fiscal 2003 instead of the 45,000 it planned to employ at the end of calendar 2002.

Lucent will disclose further details on these restructuring actions and their financial impact when it announces earnings on Oct. 23. At that time, Lucent is also expected to reveal which products it plans to discontinue as it restructures and reduces costs.

Lucent has already shelved its WaveStar LambdaRouter optical switch. Reports have surfaced that Lucent has also pulled the plug on its Lucent Softswitch. And rumors began circulating last week that the Big Red Circle has painted a Big Red Slash through its TMX 880 MPLS multiservice core switch.

Lucent is banking its future on products from its past. “Lucent is not faced with any immediate bankruptcy risks and has sufficient liquidity to fund its restructuring through 2003, but the company – like its competitors – will find it increasingly difficult to justify R&D investments and the overhead to stay a leader in target markets that are shrinking,” Lesieur says. “While the telecom equipment market is still quite large, it is shrinking to a point at which the top players cannot all reach profitability in 2003 while sustaining R&D and marketing expenses to stay competitive in the long term.”

Lucent stated that its plans to return to profitability in fiscal 2003.