Lucent cuts profit growth forecast again

Jessica Hall

NEW YORK: Telecommunications equipment maker Lucent Technologies Inc. again

slashed its growth outlook, saying fourth-quarter profits would fall 25 to 29

per cent amid lower-than-expected optical sales and a faster drop in sales of

traditional telephone switch equipment.

Lucent, which has been struggling to recover from product development and

manufacturing missteps, said on Tuesday it expects fourth-quarter pro forma

earnings from continuing operations to be 17-18 cents a share, compared with 24

cents a year ago.

Analysts had expected the company to earn 27 cents a share, according to

research firm First Call/Thomson Financial.

Lucent's expected drop in fourth-quarter profits contrasts with a forecast in

January that profits would grow about 20 per cent. Lucent has cut its growth

outlook three times this year.

Murray Hill, N.J.-based Lucent's revenues will be about $9.3 billion to $9.4

billion, a 14 to 15 per cent increase over the same period a year ago. Lucent

originally had expected fourth-quarter revenues to increase by about 20 per

cent, but trimmed that forecast in July to 15 per cent.

Shares of Lucent closed at $31-3/8, down 15/16 on the New York Stock

Exchange. The company's announcement came after the market closed. In

after-hours activity, the stock dropped to $25. Lucent's stock has fallen 58 per

cent so far this year.

"This is a troubled situation for a good company in a very good market

that lost its way. The problems are fixable. But the time frame for fixing them

is more than two quarters. It's going to get messy before it gets better,"

said Lehman Brothers analyst Steve Levy.

The company cited several reasons for the fourth-quarter shortfall. It had

higher reserves to cover potential bad debts from loans made to upstart

telephone companies; a 13 per cent drop in sales of traditional telephone

switching equipment; and a 5 per cent drop in sales of optical networking

systems, including optical fiber.

The drop in optical sales comes amid the biggest boom in demand for optical

fiber and equipment that the telecommunications industry has ever seen.

Lucent also said fourth-quarter sales in its wireless business would be flat

compared with the year-ago results, which included a major foreign contract.

Lucent sought to quell concerns that its sales shortfall was due to a general

drop in equipment spending by telephone companies and Internet service

providers. Stocks of communications equipment companies have been under pressure

in recent weeks amid concerns that carriers would trim their spending plans.

"You should not equate a decline in circuit switching in this quarter as

a decline in carrier spending. The market overall for the building blocks for

the broadband and mobile Internet remains strong," Lucent chairman Rich

McGinn told analysts and reporters on a conference call.

(C) Reuters Limited 2000.