Lucent posts first profit in 3 yrs

Ben Klayman

CHICAGO: Lucent Technologies Inc. returned to profitability after more than three years, the culmination of a tortuous restructuring that saw the telecommunications equipment maker slash its work force by 78 percent.

The company's fiscal fourth-quarter profit, as well as its forecast for flat to slightly higher sales in the current fiscal year, offered hope that the decline in demand from telephone companies has hit bottom, analysts said. Lucent's shares rose over 8 percent to their highest level since July 2002.

"A lot of the skepticism about Lucent's long-term sustainability and competitive position need to be reevaluated in a picture where they can generate positive results like this," said Sanford Bernstein analyst Paul Sagawa, who has an "outperform" rating on Lucent stock but does not own shares.

"It does show that the market is certainly not getting worse," he added. "The catalysts are lining up to be positive for the sector and for the stock."

Lucent's last net profit was recorded in the March 2000 quarter. It suffered 13 straight quarterly net losses as excess network capacity, built during the heady days of the Internet boom, and slack customer demand forced phone companies to slash spending.

In July, Lucent said it did not expect to see profits again until some time in 2004.

"I feel like we're closing a chapter on weathering the storm and shifting our focus to figuring out how to impact the top line," Lucent Chairman and Chief Executive Patricia Russo told Reuters. "We have in many ways kind of reinvented the company. We don't look anything like we looked even three years ago."

She said the company has essentially completed its restructuring, which was launched in January 2001, and has implemented plans to broaden its sales in areas like services, government contracts and outside the United States.

While Russo said the industry was showing signs of stability, she refused to say spending declines have bottomed out or a recovery has begun.

Nevertheless, Lucent said it expects to return to sustained profitability some time in 2004.

$30 BILLION IN LOSSES

Lucent, one of the world's largest telecom equipment makers along with Canada's Nortel Networks Corp. and France's Alcatel, has been a poster child for the industry's struggles. It rang up $1.16 billion in net losses in fiscal 2003 and about $30 billion in combined losses since its last quarterly net profit.

As it struggled to survive the downturn, Lucent altered its structure by spinning off its corporate business and chips units, now Avaya Inc. and Agere Systems Inc., respectively, and sold its fiber cable operations and several other plants.

Employment at the Murray Hill, New Jersey-based company has shrunk from its July 2000 peak of 157,000, including those at the businesses it later spun off, to 34,500 at the end of September.

On Wednesday, Lucent reported a fourth-quarter net profit, including preferred dividend payments, of $77 million, or 2 cents a share, compared with a loss in the year-ago quarter of $2.88 billion, or 84 cents a share.

Excluding one-time items, Lucent reported an operating profit of about $9 million, or nil per share.

Sales in the quarter ended Sept. 30 fell almost 11 percent from the year-earlier quarter to $2.03 billion, but rose 3 percent from the previous quarter.

Analysts were expecting Lucent to post a fourth-quarter loss before one-time items of 4 cents a share on sales of $2.15 billion, according to Reuters Research, a unit of Reuters Group Plc.

Lucent did not provide a forecast for the first quarter, but expects 2004 sales to be flat to up slightly from the previous year's $8.5 billion. Analysts were expecting $9 billion in 2004, Reuters Research said.

The company also recorded a noncash charge to equity of $594 million in the quarter related to its management pension plans, largely due to declines in interest rates used to develop the discount rate to value the plans' obligations. It said the plan does not require cash contributions in 2004.

Lucent's stock rose as high as $2.65, and was trading in the afternoon at $2.64, up 20 cents, in the heaviest trading volume on the New York Stock Exchange.

Reuters