Earnings Reports for Oct. 23

Lucent Ousts Chairman as Profits Fall

Lucent Technologies fired Chairman and Chief Executive Rich McGinn today, posted a 22-percent drop in fourth-quarter profits, and slashed its sales and profit outlook for the first quarter of 2001.

McGinn’s ouster follows several quarters of disappointing profits at the world’s largest telecommunications equipment maker, as well as manufacturing constraints and late introductions of new optical-networking products.

Lucent said its fourth-quarter profits from continuing operations fell to $600 million, or 18 cents a share, down from $768 million, or 24 cents a share a year ago. Revenues for the quarter, which ended Sept 30, rose 14.6 percent to $9.4 billion, up from $8.2 billion.

The results were in line with Wall Street analysts’ reduced expectations of 17 cents a share, according to research firm First Call/Thomson Financial.

Lucent’s problems have been widespread. It cut its growth forecasts four times this year, fell behind rivals Nortel Networks Corp. and Cisco Systems Inc. in introducing new products, and failed to keep up with booming customer demand for optical networking products.

The stock has fallen about 70 percent so far this year, erasing about $180 billion in market value. The stock closed at $22-1/16, down 9/16, on the New York Stock Exchange.

Murray Hill, N.J.-based Lucent cited several reason for its disappointing fourth-quarter performance. Its sales and gross margins in the optical business were lower than expected, due primarily to the late development of new products.

Sales of its traditional telephone switching products were lower than expected. It also faced pricing pressure in its key product areas, including optical, switching and wireless, Lucent’s Chief Financial Officer Deborah Hopkins said.

Lucent’s board decided on Sunday to fire McGinn after it became clear that the problems would linger into 2001, pushing its revenues down 7 percent and wiping out any hopes of a profit in the first fiscal quarter ending Dec. 31.

Analysts had expected the company to post a profit of 23 cents a share in the first quarter, compared with 33 cents a year ago. Lucent expects results from operations will improve sequentially each quarter for the rest of fiscal 2001, but it did not provide specifics.

Tom Lauria, an analyst with ING Barings, said he was surprised by the extent of the company’s expected first-quarter profit shortfall. “How do you have zero profit on $8 billion in revenues?” Lauria asked.

Lucent also warned that it does not expect a significant increase in sales of its optical products. Its weak performance comes even as the rest of the industry has experienced the biggest boom in demand for optical and data networking equipment.

Some analysts speculated that Lucent had lower sales to key customers such as its former parent company AT&T Corp., which may have turned to other manufacturers.

AT&T bought about $4 billion in equipment and services last year, representing about 13 percent of Lucent’s revenues. This year, sales to AT&T may drop to about $3 billion, or about 10 percent of Lucent’s total sales, Lauria said.

Rumours of McGinn’s demise have swirled for months. Lucent has been working to rebuild investor confidence, catch up to rivals, and restructure operations. Although McGinn had said the company’s problems were “fixable,” investors and analysts had said a bold management shake-up was needed.

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