October 23, 2000 9:20 AM PDT

Lucent replaces CEO, cuts outlook

Telecommunications equipment maker Lucent Technologies ousted chairman and chief executive officer Rich McGinn on Monday, replacing him with former chairman Henry Schacht in what analysts are saying is a much-needed overhaul.

Lucent, which is expected to announce its earnings after the market closes Monday, also cut its fiscal first-quarter outlook, saying it expects revenue to decline about 7 percent and pro forma earnings to break even. Lucent was originally planning to announce earnings Tuesday.

This is the fourth time the company has issued earnings warnings this year. Analysts polled by First Call/Thomson Financial expected the company to earn 23 cents a share, compared with 33 cents a year ago.

Chase Hambrecht & Quist analyst Michael Neiberg said both announcements represent much-anticipated restructuring news by Lucent.

"I think everybody's been kind of waiting for them to acknowledge they need a change," said Neiberg. "It looks like Wall Street has been wanting this to happen."

Lehman Brothers analyst Steven Levy said he is optimistic about the company's chances to bounce back. "This is a very fixable situation; they are in a great industry," he said.

Wall Street seemed to echo this sentiment. By midday, shares of Lucent were up $1, or about 4 percent, at $23.63.

McGinn's departure comes as no great surprise. Pressure has mounted on the executive over the past year as Lucent issued three earnings warnings--the fourth one Monday--and watched its stock plummet 75 percent from its 52-week high of $84.

Lucent, which was slow to shift from traditional telephone-switch networks into fiber optics, has struggled, while competitors such as Cisco Systems and Nortel Networks have advanced. Recent efforts by the company to restructure itself have failed to halt the slide.

In turn, investors have increasingly put pressure on McGinn.

"I think that ultimately investors hold the CEO responsible," said Lehman's Levy. "I think Rich McGinn held himself accountable." see story: Lucent CEO walks tightrope

Henry Schacht, 66, will take over the role of chief executive, a position he held from 1995 to 1997, while the company searches for a replacement. Lucent also announced it has halted its search for a new chief operating officer.

In a formal statement from the company, Lucent's board of directors thanked McGinn for his tenure but insisted "an immediate change in leadership was necessary."

"This was a difficult decision made after considerable deliberation," said Franklin Thomas, Lucent's senior director, representing Lucent's board. see story: Lucent's loans gone bad "Rich has made significant contributions over the past five years as he focused the company on the growth markets and key technologies that would ensure its future prosperity. However, the board felt a different set of skills was required at this point in the company's life."

Schacht will immediately step down from his role as chairman of Lucent spinoff Avaya but will remain on the board. He held the position of Lucent CEO between 1995 and 1997, after serving as CEO at Cummins Engine Company, where he worked for 31 years.

The company will address the changes as part of its earnings call at the close of the market Monday.

 

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