Lucent Technologies Inc. seems to face adversity on all fronts. On the technical front, its competitors have roared past with optical equipment innovations. On the business front, it keeps issuing heartbreaking profit warnings. On the accounting front, it overstated its fourth-quarter results.
Last week, the siege intensified on two other fronts. Its shareholders unleashed legal ammunitions with a class-action lawsuit over its exaggerated fourth-quarter warnings and Standard & Poor’s rating of the company fell to “negative.”
The class-action lawsuit was brought in U.S. District Court for the District of New Jersey on behalf Lucent’s common stock purchasers by the law offices of Dennis J. Johnson.
The shareholders allege that Lucent violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and the 10b-5 by misrepresenting its fourth-quarter expectations.
Lucent had issued a fourth-quarter result projecting 18 cents per-share fourth-quarter earnings. But that announcement was retracted when the company noticed an error in its books, promptly acknowledged it in a press release and notified the Securities and Exchange Commission.
The company also said it could not confirm its earlier guidance for the Dec. 31 first quarter.
The revenue-recognition issue compelled the company to pare down its projected revenue for the period by $125 million, costing the shareholders 2 cents per share.
The lawsuit seeks to recover damages resulting from the misrepresentation.
These misfortunes triggered Standard & Poor’s decision to scale down its ratings last week to “negative.”
With a surgeon’s curiosity, Standard & Poor plans to meet with Lucent’s management to evaluate its market standings in key sections, its strategy to energize its operating profitability and sales growth, its vendor finance criteria and the impact of its sales-force reorganization.
The 1996 AT&T spinoff has tried to revamp itself by reassessing its reserves for bad debt among its speculative-grade competitive local exchange carrier customers and had agreed to sell its power business to Tyco International for $2.5 billion.
It also intends to spin off its microelectronics business to shareholders in 2001.
