Lucent to buy $3 bn worth Agere gear

Ben Klayman

CHICAGO: Semiconductor and optical components maker Agere Systems Inc. said

on Thursday that former parent Lucent Technologies Inc. has committed to buy

almost $3 billion worth of its products over the next three years.

The Allentown, Pennsylvania-based company said in quarterly documents filed

with the US Securities and Exchange Commission that Lucent will buy at least

$800 million of Agere products from Feb. 1, 2001 through Jan. 31, 2002, and at

least $1 billion in each of the two years after that.

The agreement allows Lucent to carry over portions of the yearly purchase

commitments during the first two years, according to the filing. Agere

spokeswoman Samantha Baxter said the contract does not include a provision if

Lucent fails to meet its requirements, but declined to discuss the deal further.

Agere also did not say in the filing whether it would provide the products to

Lucent at set prices. Agere and Lucent declined to comment on that issue. Guzman

& Co. analyst Patrick Comack said in such a tough telecom environment, where

customer spending has slowed, Lucent will likely have negotiated flexible terms.

"I'm sure this purchase agreement can be revisited or renegotiated and

it's not ironclad by any means," he said. "Lucent is generating less

revenues and won't have as much business and hence as much need for

components."

Lucent spokeswoman Michelle Davidson said the contract is part of the plan to

establish Agere as a separate company, and declined further comment. Lucent has

already purchased $242 million from Feb. 1 through June 30 under the agreement,

according to the filing.

The two firms also have agreed to provide each other on an interim,

transitional basis with various data processing, telecommunications and

corporate support services, including accounting, financial management, tax,

payroll, legal, human resources and other general support, Agere said.

In the quarter ended June 30, Agere said revenue from products sold to Lucent

totaled $113 million, down from $251 million in the same period last year. It

also said revenue from products sold to Lucent in the nine months ending June 30

totaled $518 million, down from $707 million last year.

Agere's Baxter attributed the decline to the slowdown in the telecom

industry. The revenue included sales to another former Lucent unit, Avaya Inc. ,

which was spun off on Sept. 30, 2000. Sales to Avaya are excluded form the

Lucent total after that date.

Agere sold about $1 billion of products to Lucent in fiscal 2001, up from

about $925 million the previous year, Baxter said.

Lucent partly spun off Agere earlier this year and had said it intended to

distribute its remaining 58-per cent stake in a tax-free distribution by the end

of September. However, last month, Lucent said it was in discussions with its

banks to amend its credit agreements to allow restructuring charges. That would

delay the Agere separation by up to six months.

Lucent also said it may explore an alternative way to giving Agere full

independence, including a possible secondary offering.

(C) Reuters Limited 2001.