Lucent Technologies Inc.’s slow and steady slide from Wall Street darling to Wall Street doldrums accelerated last week when the company issued a profit warning that triggered several downgrades and sent its stock plummeting to a new 52-week low.
The company said it expects earnings for its fourth fiscal quarter, which ended Sept. 30, to be lower than previously announced.
Lucent said pro forma earnings per share from continuing operations likely will be in the range of 17 cents to 18 cents per share, compared with 24 cents per share for the year-ago quarter. Pro forma revenues from continuing operations are expected to be in the $9.3 billion to $9.4 billion range, an increase of 14 to 15 percent from the same period last year.
In July, Lucent said it expected pro forma revenues to grow 15 percent during the quarter and pro forma EPS to fall roughly in line with revenue growth.
In addition, the company said it expects to report flat growth in its wireless business, primarily due to a major foreign contract last year. The company is scheduled to release its quarterly earnings report Oct. 24.
At least eight analysts downgraded Lucent on the news.
“While management has identified the problems and initiatives are under way, we don’t expect any stock momentum for at least three months,” said Morgan Stanley Dean Witter in downgrading Lucent’s stock from Strong Buy to Outperform.
J.P. Morgan analyst Greg Geiling also downgraded Lucent’s stock, saying, “While Lucent shares will likely trade this morning at a valuation level that we believe will be extremely attractive, we are hard pressed to encourage investors to buy at this level until we gain greater clarity on Lucent’s forward-looking prospects.”
Standard & Poor’s revised its outlook on Lucent to negative from stable and affirmed its ratings on the company.
Both the company’s credibility and its stock price have crumbled since its stock hit a high of $84 last December. Just weeks later, the company warned that first-quarter revenues would be flat with the prior year and EPS would be lower than expected.
The company’s most recent profit warning sent shares plummeting to a new 52-week low of $20 Wednesday, losing more than one-third of their value and finishing the day at $21.25. The stock closed at $23.25 Friday.
Tough questions
A growing number of people openly question whether the Murray Hill, N.J., marvel can pull out of its tailspin.
Even before Lucent issued last week’s profit warning, the company’s decline was a case study of the dismal state of telecom stocks.
“Lucent is a giant company that may not manage its way out of its mess,” warned Maurice Werdegar, chief investment officer of MetaMarkets.com.
“They don’t know what the market is or how to attack it,” said Andrew J. McCormick, senior optical networking analyst with Boston’s Aberdeen Group. “I find it hard to understand what their strategy is.”
“They’re very much in danger of becoming a non-entity with powerhouses like Cisco, Ciena and Nortel” competing against them, said Mark Lutkowitz, telecommunications consultant for Trans-Formation Inc. in Birmingham, Ala. “You can only have so many powerhouses. Where does Lucent fit into all this?”
Mary Ward, Lucent spokeswoman, admitted there is no quick fix to the company’s problems, but said they can be resolved. “We are undertaking a major retooling of the business,” Ward said. “Our reaction is designed to provide long-term, sustainable growth. The problems have been identified.”
Lucent has identified several areas in which it is making efforts to get back on track.
In particular, Ward said the company is consolidating its corporate infrastructure as it moves from a multidivisional company to one focused on broadband and the mobile Internet.
“We’re creating a single services organization to go after some of the high-growth opportunities that play to our core competencies,” she said.
Ward mentioned reorganization of the optical group, with the metro optical business linking with the data team, and redeploying the company’s sales efforts to be aligned for the highest growth opportunities.
Core business troubled
Until the past year, the question of fitting in need hardly have crossed the mind of Richard McGinn, Lucent’s chief executive. His company practically owned the market for telecommunications equipment. Each of its competitors was, to some extent, a niche player that fit its offerings around Lucent’s.
But McGinn acknowledged in July that Lucent’s core voice-transporting-equipment business was drying up faster than expected.
The effects of this evaporation, combined with its failure to make equipment that moves rivers of data traffic efficiently-like Silicon Valley’s Cisco Systems and Nortel Networks of Brampton, Ontario-spells trouble.
The trouble has been widely felt in individual wallets.
Lucent-with more than 5 million shareholders-has been the second most widely held security in the United States behind only Metropolitan Life, according to Chicago’s Morningstar Inc. That’s largely because it was spun off from widely held AT&T Corp. in 1996.
But also, until recently, there was little reason to consider selling Lucent shares. From the time of its record-breaking initial public offering in 1996 until its peak last December, the shares climbed 1,147 percent, according to Bloomberg.
Brooke Southall is reporter with RCR Wireless News sister publication Investment News. Global Wireless Editor Sandra Wendelken also contributed to this story.
