Lucent: A spin-off success story

When AT&T (T) spun off its systems and technology business in April 1996 under the moniker Lucent Technologies (LU), many analysts and investors were skeptical.

They wondered if the chunk of AT&T that had made up its equipment manufacturing business would be successful as a stand-alone operation. Now, as AT&T itself struggles, Lucent is booming. Instead of performing like a sluggish monopoly, the company has taken on the personality of a Cisco or a Qualcomm.

Lucent's stock hit another 52-week high today, with its shares selling at 116-7/16, up 1-3/16, during midday trading. That compares with a $27-per-share offering price at the time of the $3 billion spin-off, the largest in U.S. history.

The company's stock has appreciated more than 100 percent this year alone, and its market capitalization stands at $76 billion, confirming the wisdom of breaking up AT&T for the second time in three decades. Lucent already has announced a 2-for-1 stock split.

Clearly, the company is benefiting from the much-ballyhooed convergence of voice and data networks. Indeed, chief executive Rich McGinn says the company has been "targeting the hottest growth opportunities in communications technology."

It faces stiff competition, however, from a laundry list of companies, including 3Com, GE, Northern Telecom, Qualcomm, and Motorola.

But Lucent has been highly successful at filling in gaps in its product line, as well as at expanding its offerings through acquisitions. One such acquisition was the purchase last summer of voice-mail systems maker Octel Communications for $1.8 billion. Others have included TKM Communications, a call center company; Livingston Enterprises, which makes remote-access equipment; and Prominent, an Ethernet start-up.

Lucent also runs Bell Labs, AT&T's longtime R&D arm, and last month formed a venture capital fund to invest in new technologies.

The company repeatedly has beaten Wall Street's quarterly earnings estimates, posting a string of seven record-breaking quarters. It reported first fiscal quarter profits of $1.12 billion (or $1.72 per share), up from $859 million ($1.35 a share) posted the same quarter a year ago. Analysts had been expecting closer to $1.50 per share.

Most analysts continue to be bullish on the stock, but some recently have downgraded their recommendations, largely because they worry the stock is getting ahead of itself. They also are concerned about a slowdown in some of Lucent's fast-growing markets, and about pressure on profit margins as competition heats up.

But for now, the stock keeps rising, proving the old adage that the sum of a businesses' parts can add up to more than the whole.