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Things Looking Up for Lucent Technologies

Posted on: Friday, 28 February 2003, 06:00 CST

Things Looking Up for Lucent Technologies

source: Associated Press Top Tech News

The storm clouds over telecommunications gear maker Lucent Technologies are clearing up, bringing a sunnier forecast.

An agreement with federal regulators ending a two-year probe with no penalties, an early contract agreement with unionized workers, settlement of two lawsuits and other good news in recent months have removed some key problems that have been worrying shareholders and distracting management.

"The worst is behind them, but they're not quite out of the woods yet," given a lingering industry slump in which telephone companies have been buying very little equipment, said telecommunications analyst Steve Levy of Lehman Brothers. "They know that they have to rebuild credibility" after consistently missing financial targets until last quarter, he said.

Murray Hill-based Lucent said Thursday it has reached an agreement with the Securities and Exchange Commission resolving an investigation that began late in 2000, when Lucent disclosed it had prematurely booked $679 million in revenues in the prior quarter. Lucent notified the SEC, fired one employee and restated earnings figures already publicly reported.

Under the agreement, which needs final SEC approval, Lucent does not have to pay a fine, admit wrongdoing or make further financial restatements. The company simply agreed not to violate federal securities laws again.

Lucent chairwoman and chief executive officer Patricia Russo said the SEC agreement allows management to focus more on getting back to profitability, which she has promised by September. Russo was brought in to lead the company a little over a year ago after a stint at Kodak.

"The SEC must have concluded that this was not pervasive (but) a small, isolated problem," said Paul R. Brown, head of the accounting department at New York University's Stern School of Business. "There's just no way politically that they would give anybody a special deal simply because of voluntary disclosures," given the current scrutiny of corporate accounting practices.

The SEC probe was "an unquantifiable risk for Lucent," depressing its stock price, now below $2 after peaking at $84 a few years ago, said telecommunications equipment analyst Hasan Imam of Thomas Weisel Partners. He said Lucent has boosted its gross margin, has new contracts coming in steadily and has stabilized revenues and improved its balance sheet.

"At one point, there was a question about survivability," as assets dwindled, but that's behind the company and it should end its fiscal year in September with about $2 billion on hand, Imam said.

Lucent shares closed up 10 cents, or 6.6 percent, at $1.61 in trading Thursday on the New York Stock Exchange.

After two years of news about mass layoffs, plunging revenues, quarterly losses as high as $8.8 billion and other dire problems, Lucent's shareholders and remaining 40,000 workers must be cheered by the recent good news. It includes:

-On Tuesday, credit rating agency Standard & Poors removed Lucent from its credit watch list, noting the company has cut costs and stabilized cash flow, although it faces challenges in a "very uncertain communications marketplace."

-Last week, Russo told shareholders at the annual meeting that current-quarter revenues should total $2.5 billion, up about 20 percent and the first increase since a slide that began two years ago.

-Lucent signed 20 major contracts worth about $1.5 billion last quarter and this quarter has won several contracts for its growing wireless network equipment division.

-In January, Lucent settled for an undisclosed amount a whistleblower lawsuit with a former sales vice president, Nina Aversano, who was fired in fall 2000 by then-CEO Richard McGinn, reportedly for complaining his profit forecasts were too rosy. McGinn was canned by Lucent's board soon after, as a downward spiral followed news of the premature revenue recognition.

Levy said reaching pacts early with organized labor is the most important development for Lucent, allowing it to better figure future costs and do more planning. The 20-month contract, ratified earlier this month by about 5,700 unionized workers who install and maintain equipment, gives them two 2 percent raises. It takes effect Saturday.

"The progress that we're making does have an impact on morale," Russo said. "I'm sensing people are feeling better."

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