Lucent hits all time low- shares dive, more job cuts

By Ben Klayman

CHICAGO: Lucent Technologies Inc., has informed that its business was much worse than analysts had feared and more job cuts were likely, driving shares to an all-time low. The Murray Hill, New Jersey-based company, which has posted nine straight quarterly losses, said lower customer spending, particularly in North America, has resulted in it targeting a lower break-even rate, meaning more job cuts are likely. Lucent could end up with about one-third the work force it had in 2001, analysts said.

Lucent further warned it would post a 45 cents loss during its fiscal fourth quarter, nearly triple what analysts were expecting. The warning echoes other suppliers that the telecom market shows no signs of recovery soon, analysts said. Lucent's stock fell as low as $1.29, and was still off 34 cents, or 20.7 percent, to $1.30 in late afternoon trading on the New York Stock Exchange. Over the past 52 weeks, the stock has traded in a range of $8.75 and $1.29.

"Where does this telecom bloodbath end? It's beyond comprehension," Avtera Management analyst Tom Lauria said. "This is the exact opposite -- in fact it's worse -- of what we saw in the heyday of 1998 and 1999, where the news flow was continuously good."

The deterioration raises questions about Lucent's financial health and could have negative consequences on the company's balance sheet, including using too much cash, he said.

However, Lucent said even with the lower-than-expected fourth-quarter results it expects to meet the financial requirements of its existing $1.5 billion credit facility, which it has not drawn on. It also said it still aims to return to profitability by the end of September 2003.

Rating agency Standard & Poor's and Fitch Ratings responded to the news by slashing Lucent's corporate credit rating, saying the company may not succeed in meeting its time table for return to profits. Moody's Investors Service threatened to follow suit. Lucent, which said it has enough money to fund its operations, had $5.4 billion in cash and short-term investments, and $5.3 billion of combined debt and preferred stock outstanding at the end of June.

Its stock fell more than 20 percent in Friday trading to its lowest intraday price since its 1996 spin-off from AT&T Corp. and has slumped more than 90 percent since it launched its restructuring in January 2001. In the same period, the American Stock Exchange Network Index, an industry proxy, has fallen 86 percent.

The company's bonds also fell, a sign investors are less convinced of the company's ability to pay its debts.

Fourth Quarter Fears

Lucent said it expected sales in the fiscal fourth quarter, ending this month, to fall 20 percent to 25 percent from the third quarter. It also said it is targeting a quarterly revenue break-even rate of $2.5 billion to $3 billion, down from its previous target of $3.5 billion. More job cuts are on the horizon, the company said.

"That will likely result in further (job) reductions. As far as a range, we will not speculate right now," Lucent spokesman Frank Briamonte said. The company will provide more details during its fiscal fourth-quarter earnings conference call on Oct. 23. Lucent previously said it would cut its work force to about 45,000 by the end of the year, but acknowledged in its quest to further cut costs that more reductions would be likely. The company employed 106,000 in 2001.

Lauria said it is likely that after this round of cutting, Lucent will end up with between 30,000 and 35,000 employees. The company also will need to eliminate more product lines and ship more work to outside manufacturers. Lucent's revenue outlook for the fourth quarter implies a range of $2.2 billion to $2.36 billion, compared with the average Wall Street estimate of $2.87 billion, according to research firm Thomson First Call. A year earlier, Lucent reported revenue of $5.2 billion.

'Awful Sector'

"It's kind of hard to be shocked by the magnitude of these declines when they're declining every single quarter," said Shawn Campbell, analyst with Northern Trust Corp.'s asset management arm, which owns a small number of Lucent shares. "It's certainly a little bit worse than what some of their competitors are seeing," he added. "It's a pretty awful sector here."

The lower sales forecast at Lucent, one of the world's largest telecom equipment makers, could drop its revenue below rival Nortel Networks Corp., which warned last month its third-quarter sales would fall 10 percent to about $2.5 billion.

Lucent said it expects a fourth-quarter loss of 45 cents a share, excluding a range of one-time items, due to the revenue decline and the inability to recognize tax benefits on losses. It also blamed charges associated with a significant customer financing default in September, but didn't identify the customer or the amount involved.

Lehman Brothers analyst Steve Levy said the customer that defaulted is Leap Wireless International Inc. Officials at the San Diego-based wireless operator could not be reached for comment, but Leap has said it is in violation of its credit agreements and analysts fear it may file for bankruptcy.

Prudential Securities estimated the charge for the default will account for about half the quarter's expected loss, or $700 million. The company had not previously provided guidance on its expected loss, but analysts polled by First Call were expecting a loss of 16 cents a share.

(Additional reporting by Jonathan Stempel in New York)

© Reuters