Lucent Forecasts 10th Straight Loss

Murray Hill-based Lucent said Friday that excluding one-time items, it will lose about 45 cents per share in its fiscal fourth quarter. That's nearly three times the 16-cent loss forecast by analysts surveyed by Thomson First Call.

The news sent Lucent shares down nearly 24 percent, or 39 cents a share, to close at $1.26, on the New York Stock Exchange. Lucent shares peaked at about $84 per share in December 1999.

"We are redefining what worst-case scenario means," said Lehman Brothers telecommunications analyst Steve Levy of Lehman Brothers, which cut its recommendation on the stock from buy to hold.

Meanwhile, two major rating services downgraded Lucent's corporate credit rating Friday, and a third said it is under review.

Lucent reportedly is planning another 10,000 job cuts, and analysts say that's what people inside the company are saying.

The company said it expects sales to fall 20 percent to 25 percent in the quarter ending this month, from $2.95 billion in its third fiscal quarter. That would mean a range of $2.36 billion to $2.21 billion, well below analysts' forecasts of $2.87 billion.

"This is a shockingly bigger dropoff than what I dreamed," said broadband equipment analyst Timm Bechter of Legg Mason.

The 45-cent pro forma loss equates to $1.5 billion, but the net loss will be much higher. That's because pro forma loss excludes business restructuring and other one-time charges, results of the optical fiber business it sold last fall, profit from that sale and amortization of excess costs from past acquisitions. It also excludes about $160 million to settle a consumer class-action lawsuit.

"We've seen it coming for a couple months. All the red flags were there," said telecommunications analyst Susan Kalla of Friedman, Billings and Ramsey.

Those included signs the Baby Bells and even wireless communications companies, lately Lucent's strongest business, likely would cut equipment buys further, Kalla said. Also, Lucent has missed earnings forecasts every quarter since December 1999.

Lucent primarily blamed its fourth-quarter loss on the decline in sales, particularly in North America, as telephone and Internet service providers continue to delay major purchases.

"You've got a collapse of the industry, and where [equipment makers are in the food chain puts them in a precarious position," Kalla said.

A top Lucent competitor, Nortel Networks, two weeks ago forecast lower-than-expected quarterly revenues and said it was eliminating 7,000 of its 42,000 jobs. Cell phone maker Nokia said its sales might be slightly below earlier productions, and network equipment maker Tellabs said sales could be down 25 percent and is axing 25 percent of its work force. Some smaller players in the telecommunications sector also have issued recent revenue or profit warnings.

Lucent said two factors in this quarter's expected loss are its inability to collect tax benefits on its losses and charges for "a significant customer financing default" in the last month.

Lucent spokesman Frank Briamonte would not disclose the amount of the charge, the size of the defaulted loan or the customer's name.

Lucent said it is devising plans to cut its quarterly break-even level for revenue and expenses to between $2.5 billion and $3 billion, down from its earlier goal of $3.5 billion.

"It's likely that our break-even efforts will result in further reductions," Briamonte said.

He would not say how many more jobs will be cut until Oct. 23, when the company is to release fourth-quarter results.

Lucent has already cut its work force from a peak of 155,000 to 52,000 as of June 30. Half those cuts were made through the spinoffs of Agere Systems and Avaya and the sale of the optical fiber business.

In July, Lucent executives said another 7,000 jobs would be eliminated by the end of this year. The 10,000 cuts insiders are expecting would bring Lucent's headcount down to 35,000.

Lucent already has cut quarterly spending on research and development in half, to $500 million over the last 18 months, and further cuts there and throughout the company are likely, Levy said.

Meanwhile, Lucent seemed to backpedal on previous forecasts it will return to profitability sometime in 2003. On Friday, it said the company continues to "work toward" a return to profitability by the end of fiscal 2003.

Bechter said that was too optimistic as the company keeps reducing its break-even target and pushing back the timing. A survey by Thomson First Call shows losses gradually shrinking until break-even in the 2004 fourth fiscal quarter, two years from now.

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