July 24, 2001 Conference Call Notes Lucent Technologies Inc.
Announced more than 2.5 billion in contracts during the last month. Backlogs continue to increase.
Gross Margin constrained by low sales and various contract write-downs. Focus on large Service Providers will help gross margins. Lucent is not ready to quantify yet.
Taking aggressive cost reduction actions. Some are already paying off. They are watching every discretionary expense.
Research and Development decreased 18 % sequentially from last year. R & D is 13.6 % of Revenues.
Loss of 1.89 billion on Gaap basis.
Continues to move forward with Agere spin-off. Looking to amend credit facilities. Agere will be delayed upwards of 6 months. Different avenues maybe pursued.
Cash Flow from operating activities has improved by 1.40 billion dollars.
Inventory declined 1.1 billion dollars. This included a write-down and better inventory management.
Domestic vs. International was 65/35 vs. 70/30 last quarter. Overall outside USA revenues increased, primarily due to China. USA revenues decreased 14 % sequentially, primarily because of US slowdown.
Total Commitments on vendor financing declined about 1.4 billion.
Cash Flow from operations improved by 1.4 billion. Depreciation and Amortization remained steady at 650 million. Capex was 350 million. Financing cash flow was 1.1 billion. WE NEED TO SEE 10Q (my notes).
Dividend eliminated immediately.
Non-cash charge of 1.2 billion in Q4 by recent employee reduction measures.
Announced sale of 600 to 650 mil to Celestica. This should help Gross Margins. Also, announced sale of fiber optic manufacturing for 2.75 billion. This gives cash as well as some additional joint ventures.
Pleased with results of previous 7 point plan. They would like to use further measures to radically accelerate Lucent changes, BUT, this “phase II” needs approval. Anticipated charge of 7 to 9 billion in Q4. Of this charge, about 2 billion will affect Cash.
Expects return of profitability and cash flow in F2002. Lucent is asking for changes to covenant agreements. (I think Lucent wants to take a massive charge, which would reduce book value and hence violates covenants. Lucent was firm that they were NOT looking for more funds. I think they just want to take a one-time hit and put all garbage behind them).
Expects Q4’01 sequential improvement on bottom line, no comment on top line.
Ahead of all 7-point plan except for vendor financing write-offs.
Phase 2 will be implemented when covenants are modified.
Questions and Answers
Fiber sales Quarter to Quarter were essentially flat.
One 10 % customer in quarter.
Pension credit of 400 million. This increased operating income. This has been consistent with prior quarters.
Breakeven revenue number was asked. Lucent preferred not to answer, not prepared for guidance.
Target of profitability in F2002. Hence there must be some type of internal projections. Lucent commented by saying we are looking at a smaller, leaner, less costing company. Mentioned that R & D will be about 12 % of revenues. Lucent is not prepared to guide for top line. Yet, Lucent says, “This shouldn’t be rocket science to figure out revenue numbers”. Lucent further commented that revenue growth is not a requirement for cash flow or eps positive. (My words…. this will be the topics for months to come…. revenue target is hinted, yet margin of error is huge without mentioning dollars and only %’s of R&D.)
