Lucent profits drop 22 percent

Lucent Technologies' fourth-quarter profits fell 22 percent as the struggling telecommunications equipment giant on Monday beat revised Wall Street analyst projections by a penny.

Lucent lower Stock price from October 1999 to present.

Source: Prophet Finance

Lucent announced a fourth-quarter profit of $600 million, or 18 cents a share, on revenue of $9.4 billion. The company earned $768 million, or 24 cents a share, on revenue of $8.2 billion last year. The figures do not include one-time charges or revenue from Avaya, the company's corporate networking business that was spun off in September.

Financial analysts had expected revised earnings of 17 cents per share, according to a poll taken by First Call/Thomson Financial. Expected earnings were previously set at 24 cents per share.

Wall Street analysts revised their estimates two weeks ago after Lucent executives warned of an earnings shortfall because of slow sales of optical networking equipment, a decline in the sale of traditional voice products and the need to store more cash to cover potential bad loans to emerging service provider customers.

Because of the company's financial troubles, Lucent's board of directors Monday ousted chief executive Richard McGinn and replaced him with former Lucent chief executive Henry Schacht to run the company as interim leader. The company also warned that sales for the upcoming first quarter will decline 7 percent from the previous year's first quarter. The profit warning is the company's fourth earnings warning this year.

"This leadership is under way and taking actions intended to create the new Lucent," said Schacht in a conference call with financial analysts. "This is a transition year, and we'll make progress quarter after quarter and make timely decisions that are going to create a healthy company."

Drastic makeover in the works
Schacht, who will run Lucent while it searches for a new chief executive, said the company will look for a tech-savvy candidate that can run day-to-day operations.

"We intend to turn the company to a new CEO on a new track and...in the condition it's expected to be in," he said.

During the conference call, Lucent executives reiterated that the company is undergoing a major reorganization, which includes restructuring the sales and professional services organizations, potential revamping of the company's family of products, and possible layoffs.

Analysts expect Lucent will be in the throes of restructuring for much of the new fiscal year.

"The outlook is disappointing," said analyst David Powers of Edward Jones. "They are trying to drastically change how they do business, and it's probably going to be several quarters of transition and restructuring."

Lehman Brothers analyst Steve Levy has a wait-and-see attitude. While Lucent warned that sales in the first quarter will drop 7 percent, executives declined to give analysts any guidance for the rest of the new fiscal year. Lucent executives said they will have more of an accurate picture of the remaining year when it reports earnings next quarter.

"Their outlook is pretty murky. They're not giving guidance after the first quarter, so that raises uncertainty," Levy said. "They're moving in the right direction, but I'm not sure how fast they can turn it around."

Fourth-quarter revenue from selling networking equipment to service providers reached $7.2 billion, a 4.8 percent increase from last year. Sales from the company's microelectronics and chipmaking unit grew 59 percent to $2.1 billion.

Lucent executives said in the conference call that revenue from optical equipment fell 26 percent from the same quarter last year, while sales of traditional voice equipment fell 13 percent. Wireless equipment sales, however, increased 3 percent from last year's fourth quarter.

Lucent's shares dropped 56 cents to $22.06 during regular trading. In after-hours trading, as of 3:10 p.m. PT, the company's stock rose $1.07 to $23.13, according to the Island ECN Web site.