Lucent Technologies, Inc.
Notes
LU
January 20, 2006
Lucent has become a very small position of mine. It has also been a surprisingly modestly profitable position for us. Anyway, I think it makes up less than 2% of all portfolios. SYNA fyi is between 3 – 5% (and I’m having a blast today, i hope she becomes a teenager again). I also own 1% in a POS called LNOP 🙂 Oh, and I own a ton of Ciena.
With that said, I haven’t studied Lucent’s optical situation in a while. It is my understanding that IP is very much a focus. You can read some of my old Lucent stuff here companies/lucent.html . I’m amazed that it has been over a year since I posted on it.
here are some quick cut and pastes, which i think will show that LU is certainly focused on IP. They have always realized the certain death of PSTN.
LU on 11/11/05 analyst conference
” In the optical and data convergence space, our next generation platforms have we think give us a good position to expand and grow. In broadband access, we support IPTV on the Stinger platform. And that’s paying dividends. We’re finding environments where we are an incumbent, maybe not the sole incumbent, but as video becomes more important our customers are coming to us because of our video capability. That’s been very positive.”
” In the optical and data area, we see continued emphasis and support for Ethernet. We think that’s a significant demand driver, if you will. And so in a more traditional business for us we think we’re going to see an increased use of optical systems instead of ATMs and things like wireless backhaul. Our great advanced applications drive more bandwidth and more traffic.
In broadband access, we believe that IPTV rollouts will accelerate worldwide. And the operators will deploy those technologies that — as you’ve already seen the partnering with content providers. And then when you add IMS to the mix, we think service providers are going to be focused over time on delivering what we call a Grand Slam of fixed and mobile voice data and video services that really can redefine the way we access entertainment, information and communicate simultaneously.”
For F2005 (9/30/05) Lucent had $817M of Optical Networking Revenues, this was up from $756M in F2004 and $760M in F2003.
For F2005 LU had Data and Network Management revenues in excess of $850M, down from $925M in F2004 ane $1B in F2003.
Voice networking continues to fall as expected. Currently at $889M for F2005.
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When Lucent warned earlier this month, i said to myself “oh fupk, here we go again”. Difference being I am much lighter now on Lucent and in the real world 🙂 Warning is presumed to be in mobility solutions and not IP.
Annual revenues are still expected to be over $9B.
Optical networking revenues are still expected to be up mid single digits this year.
Lastly, LU was recently hired by BT Group for their IP network. I don’t think BT Group would hire a company that was not advanced and competent in the IP field.
” Lucent Technologies Inc. and BT Group announced that they have signed a contract for new technology that will sit at the heart of BT’s all-Internet protocol (IP). Lucent will help BT deploy a more efficient core network that will enable it to offer customers a diverse set of feature-rich services including voice, broadband, Ethernet, virtual private networking (VPN) services and IP VPN as well as supporting established packet data capabilities such as Asynchronous Transfer Mode (ATM) transport services, over the MPLS core.”
With that said, I ain’t as thrilled with Lucent now as I was in 2002, when I was quoted in Business Week at $0.74 per share.
http://www.businessweek.com/technology/content/oct2002/tc20021023_9924.htm
“Lucent still has some die-hard fans. Some analysts, including Sanford Bernstein’s Paul Sagawa, who predicted the current telecom crisis, believe Russo can pull off a turnaround — if the market for telecom equipment stops dropping. Indeed, some institutional investors are betting on it. Ronald Redfield, portfolio manager at Redfield, Blonsky & Co. says he holds Lucent shares and would advise any new clients to purchase the stock.
STEERING CLEAR. However, even he admits: “We’ve seen WorldCom and others claim there’s plenty of liquidity, and then they go bankrupt within weeks. [Lucent is] doing what it needs to be doing, but there might be no possibility of getting out.”
December 1, 2004 Unauthenticated Russo comments on UMTS Cingular Win
November 30, 2004
Dear Colleagues,
Today, we announced our first commercial UMTS contract win in North
America, and everyone should feel good about this significant
accomplishment. Congratulations.
The strategic agreement calls for Lucent to supply third-generation
(3G) UMTS network equipment, software and services to support
Cingular’s nationwide 3G service rollout. Following this deployment,
Cingular will have one of the world’s largest and most sophisticated
UMTS networks.
This is a huge win for Lucent. We now have a UMTS reference account
with a customer that will soon be the largest mobile operator in
North America.
Winning a commercial UMTS contract was one of Lucent’s top priorities
for 2004 and 2005, and a key component of our five-year strategy for
long-term growth. And we did it. It’s a major milestone for us!
Hundreds of Lucent people had a hand in this win – from the global
Mobility and Bell Labs teams that designed, developed and tested our
UMTS solution; to the Lucent Worldwide Services and Supply Chain
Network teams that deployed and managed Cingular’s successful network
trial in Atlanta; to the Cingular customer team, finance team,
Mobility, LWS and INS teams who worked together to develop the
project proposals and negotiate the contract.
With the Cingular UMTS deployment and the other major customer wins
we have achieved this year, we have been building momentum. As we
move forward, it’s important to build on our progress by winning
more and executing with excellence the wins we have.
Again, congratulations and thank you for a job extremely well done.
Pat Russo
November 16, 2004
1. It was reported on Reuters that Lucent may have a wireless deployment with Cingular. This would be a UMTS upgrade. This is also known as WCDMA. This would be Lucent’s first WCDMA contract.
2. We have read that this contract could be $350M for CY2005.
3. Neither Lucent nor Cingular have made announcements here. This solely came from a Reuters article.
October 21, 2004 Note to Employees from Pat Russo, discussing earnings release for 4Q03. This has not been authenticated, we are not responsible for any errors.
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LUCENT TECHNOLOGIES TODAY NEWSFLASH
Wednesday, October 20, 2004
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In This Issue:
* A Message from Pat Russo
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Dear Colleagues,
This morning we reported results for the fourth quarter,
and our first profitable year since fiscal 2000. This
is an outstanding achievement, reflecting your focus on
growth opportunities in the marketplace and solid execution
in every part of our business.
Thanks to your efforts, we generated revenues of
$2.40 billion and net income of $348 million, or 7 cents
per diluted share for the quarter. And we reported
$9.05 billion in revenue for the year, up 7 percent from
fiscal 2003.
Lucent’s journey back to sustained profitability has
taken us through some very difficult times. But we have
persevered, remained focused, and frankly, this year,
achieved more than we thought possible! We have now
delivered profitable results for five consecutive quarters,
and that is remarkable given where we had been in the
telecom market. There are numerous milestones that
contributed to our results this year. The year-over-year
perspective is outstanding.
WHAT WE ACHIEVED
* Grew revenues 7 percent year over year — our first
year of revenue growth since 2000.
* Improved gross margin by 11 points, from 31 percent
to 42 percent.
* Significantly improved earnings, generating earnings
of 25 cents per diluted share for the year compared
with a loss of 29 cents per diluted share in fiscal
2003.
* Dramatically improved our cash position, generating
$634 million from operations this year versus using
$948 million last year — a swing of almost $1.6 billion.
* Announced more than 100 customer wins in 35 countries.
* Announced 18 new products, 10 new technology partnerships,
as well as the acquisition of Telica to enhance our
offers for converged networks.
* Improved our Customer Loyalty Index by about 5 percent,
placing Lucent above the competitive average.
* From a shareowner value perspective, our stock
appreciated during the year 47 percent — from $2.16
on Sept. 30, 2003, to $3.17 on Sept. 30, 2004.
These results are terrific and speak for themselves.
I want to thank every one of you for your steadfast
commitment, firm resolve and determination this year.
I hope you’re as proud as I am of what we’ve achieved.
As always, we should all celebrate our significant
progress. At the same time, we know that we have more
to do. It is important for us to continue to improve
our productivity and efficiency, as our market becomes
increasingly competitive. And we have been working to
expand our customer base both outside the United States
and in the government and services arenas. This work
must accelerate. With regard to customers, we want to
create true strategic partnerships with them as they
plan, design, optimize and literally transform their
networks to next generation. And we must continue to
be unrelenting in our focus on managing our cost and
expense profile, as we drive even greater efficiency
across the business.
Looking ahead, we said we expect the market — and our
business — to grow again in 2005 as our customers continue
to invest in deploying more efficient, revenue-generating
network services. We are seeing the beginning of the next
generation of investment in networks, and there are some
pockets that are very strong opportunities for Lucent.
Clearly, the Mobility sector remains a key growth area
for us as service providers continue to move to 3G
networks for high-speed data services. On the wireline
side, we will continue to see a move to broadband access
and new IP-based infrastructures and applications. We’ll
continue to focus on areas for growth like next-gen
optical, VoIP and broadband access, while we navigate
through the significant transition from circuit switching
to packet that is occurring in that segment.
The communications industry is entering what we expect
to be a relatively long period of transformation as the
need for convergence of networks and the emergence of
blended applications are creating the ability to deliver
more personalized, seamless and simple communications
services for people at work, at home or in between.
We intend to be the thought leader and ultimately the
market leader in this next-gen convergence. We have
communicated a clear vision of the future that supports
the goals and objectives of our customers, and we are
delivering a broad portfolio of products, services and
partnerships that we believe will meet those needs
across the board. We’re encouraged by the discussions
we’re having with customers around the world about our
IMS architecture. And we’re gaining traction across
parts of this architecture. During 2004, we developed
and introduced 10 new products that support our common
platform approach to IMS across our entire wireline and
wireless portfolio. And we have numerous IMS customer
trials, including 16 trials and seven deployments at
the applications layer, 10 trials at the session control
layer and six trials and a large number of deployments
at the media/endpoint layer. It is important to remind
ourselves that it will take time to realize volumes of
business in this arena. Our focus is on positioning
with our customers now.
In closing, I want to thank you again for your hard
work in helping the company return to profitability.
This gives us operational leverage in every dimension
of the business — and has created a foundation for
continued growth and success in the future. We’re
off to a good start, and with your continued focus and
dedication, we’ll continue that momentum in ’05 and
beyond.
Sincerely,
Pat
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September 21, 2004 The following is a copy of the complete text of Gilder Technology Report www.gildertech.com one page review of Lucent. We found what we thought were quite a few misstatements of facts in that report. We specifically asked for permission to share the article and received permission from the author to do so. Here is an excerpt of where we asked.
I wrote to author, Charles Burger on 9/20/04 ” I respectfully request that you give me permission to share your Lucent one page report to other competent industry professionals and Lucent experts (both of professional and non professional nature). i once asked that previously, and you all mentioned that you would be happy to call my contacts. I am not interested in sharing contacts with you on this matter, at this point. I am also not interested in private emails sent to me by sandy on this matter. if you or GG would like to personally contact me, i have no objection there.
I think that your discussion, would be a great catalyst for clarification. It would be easier for investors, scientists, industry analysts, to see your report, as opposed to only seeing my discussion of it. Rest assured that I respect GTR, GTF a great deal, and would not share such a report without permission.
well, back to work on my analysis of your presentation.”
He posted back on the same day, ” You may share my analysis with anyone you wish. I am flattered, actually, since I am not a CPA or CFA or financial professional of
any stripe.
Here is the unabridged text as follows:
1. Report written on 9/20/04 by Charles Burger from GTR.
” Now that Lucent Technologies (LU) is a
leading supplier of CDMA and 3G infrastructure,
some of our readers have asked us if are we
ready to re-embrace this former favorite of our
Telecosm list. Perhaps we can even celebrate the
company as evidence for a return of the boom
days of yore. After all, over the last two quarters
it has claimed $664 million of operating
income.
On the GTR list of telecosm companies
from the opening gate, we touted Lucent in the
late 90s for its apparent commitment to WDM
and for its first-to-market broadband fiber
(AllWave). After its sale of many of its paradigmatic
technologies (including its fiber business)
to raise desperately needed cash, we dropped
Lucent in 2001. Lately, however, the company
seems to be recovering steadily in its remaining
wireline, services, and wireless businesses, managing
to turn an operational-cash-flow loss of
$1,900m/yr in June 2003 into a cash-flow gain
of $440m/yr in June 2004. Wow. Since annual
revenue has been flat during this period at about
$8.7b, where’s the cash coming from?
Not from services, which includes mostly
low-margin product installation and development
and which contributed just 16% to
operating income in the June 2004 quarter
(compared to 182% a year earlier when everything
else produced losses). Nor from wireline,
where revenues have decreased from $812m in
the June 2003 quarter to $715m in the current
quarter. With an operating margin of
9.5%, wireline contributes just 14.3% of
operating income.
Which means the winner is … wireless,
where quarterly revenue over the past year
increased from $624m to $986m (or from 31%
to 45% of total revenues), with operating margin
increasing from minus 7.9% to plus 33.4%.
Wireless now contributes a whopping 70% to
Lucent’s operating income.
So, now we love Lucent, right? Well, we still
have to answer the question: Is Lucent primarily
a paradigm investment or is it a bet on something
else? We applaud the developing CDMA
scenario, but like many dramas, the Lucent
story has more than one act.
With the curtain barely opening on the second
act, the news is already bad: Lucent’s retiree
benefits and pension plans are under-funded by
about $7b. Based on financial and actuarial
vagaries, projected discount rates and retirement
schedules, these estimates are about as reliable as
multi-decade weather forecasts or Keynesian
economic astrology. Based on the benefits
accrued as of today, the account is overfunded,
even after cash payments to current retirees. So
Lucent isn’t paying anything in to the fund
despite the portentous future projections.
So, maybe we, along with Lucent, should
just pretend the future isn’t coming. But we can’t
do that, because the future is now in the form of
an accounting trick. Since the current account
balance is positive, Lucent gets to add fictitious
(noncash) pension credits to its operating
results. Remove the bogus bucks, and the latest
quarter’s operating income drops from $349m
to $72m, and March’s sinks from $315m to a
loss of $38m. Uh, oh, there goes our Telecosm
celebration. Despite its claim to the contrary,
Lucent is still losing revenues and struggling at
operational breakeven. Unfortunately for
Lucent, unless markets turn bullish very soon,
the pension credits will begin to vaporize. That’s
because expected returns on post-retirement
benefits are partly based on past-year returns,
which still include the last bull market. The last
bull will start to exit the equation shortly.
Forgoing applause for Lucent’s second act
and its anerobic financials, we now raise the
curtain on Lucent’s remaining legacy products.
Wireless still contributes less than half of
total revenues, with a third going to wireline,
where steep declines in circuit-switching revenues
continue. To fight these declines,
Lucent is hoping for a revival in ATM sales,
progress in VoIP softswitch revenues with the
recent acquisition of Telica, increased sales in
network-edge switches, and major contract
wins in optical networking and switching
where its LambdaXtreme and LambdaUnite
compete with Ciena’s CoreStream optical networking
system and CoreDirector optoelectronic
switch. Lucent recently beat out Ciena
at Verizon where it will build the RBOC’s
next-generation long-haul network.
With the curtain still up on this third act,
we ask if Lucent can beat the clock on legacy
losses. Lucent may have answered the question
for us: The company projects that revenues
over next year or so should remain steady or
increase slightly by about 5%, that gross margin
will be flat to down from its current low
40s to the upper 30s, and that operating margins
should remain flat to down by as much as
5% (meaning operating losses after subtracting
the pension credits).
For the finale, we tackle valuations. In the
short- and mid-term, liquidity is not an issue;
working capital for the past year has held steady
around $2.5b and reported book value is almost
$10b (not counting pension costs), consisting
mostly of tangibles and long-dated debt maturities.
However, add in postretirement-benefit liabilities
and book value falls to negative $3b.
Similarly, the recent share price of $3.34 is a reasonable
16x estimated fiscal 2004 earnings,
until you subtract the phony pension credits
and discover that earnings disappear.
Substituting the enterprise-value-to-sales ratio
for PE, we get a lofty 3.5 compared to the average
of 2.2 for Lucent’s wireline competitors; for
Lucent, an EV/S ratio of 2.2 is equivalent to a
stock price of 67 cents.
Now, to answer our question: What does an
investment in Lucent mean? It means you are
betting that CDMA, VoIP switches, and semioptical
networking will win out over bogus
accounts, legacy equipment, and languid
bureaucracy. If you want to bet on CDMA, why
not go to the best technology company in the
world (Qualcomm) and invest without the risk
of legacy liabilities and old-world thinking?
Then again, if you want to invest in next-generation
networks, Corvis is truly all-optical and
comes without vagaries and bogus credits. And
if you want to invest in VoIP, call your local
cable company and try it out for yourself.
—Charles Burger
Do We Love Lucent Now?”
2. Here was my response. Keep in mind that Charlie did respond back, without at all contradicting my writings. Charlie is an awesome writer, and either one of us might have made an error on this one. I could be wrong on many or some of the issues I mention. I don’t think I am, but that is the purpose of such a discussion. Here is my response.
” Hi Charlie,
Part 1
Of course, I enjoyed your Lucent report, and most of it sounded correct. A few glaring errors or omissions I saw, during a quick read.
1. You were quite sarcastic about the financials. Well deserved of Lucent, because of their past history with SEC, fraud, mismanagement, etc. Yet, GTR has the same history. I have said from day one, that you all should trumpet your talents and competencies. GTR advertises that they gave investors 100%+ profits in 2003. Probably a very true statement. They fail to even slightly mention that had an investor started with them in year 2000, they would still probably be down over 70%. Such investments that no longer exist are Loral, Global Crossing and Exodus. Others that tanked big time are Corvis, and then Avanex (remember when GTR claimed that to be the lower risk investment).
2. You mention that Lucent Worldwide Servicses (LWS) is not contributing to cash flow. Can you indicate where you arrived at that assumption. You also mention on page 5, beginning of paragraph 3 the following: “Not from services, which includes mostly low margin product installation and development”. Here are some facts about LWS:
a. LWS consists of professional, maintenance and managed services. These services for the first 9 months of F2004, grew over 10% from 2003. LWS and Bell Labs is developing a Lucent Security Portfolio. LWS goal is Value over IP. Their goal is to first get into a network via services. For example, being hired to perform a network audit. They call this “Services First entry strategy”. They then attempt to find a long term presence in a network.
b. Lucent understands that by nature LWS is lower margin, primarily because they are professional services. They also are generating a currently unquantifiable amount of revenue, future revenues and industry respect, via working on LWS jobs, that at this point have zero or little of Lucent optical, broadband or wireless components of a companies communications portfolio.
c. LWS a rather new entrant to Lucent, claims that the addressable market is $43b
d. You mentioned that June quarter operating income was substantially lower than the year before. You did not mention that revenues were up both YOY and previous years quarter. Again, I do not know where you found this information. I see in the 10Q where Lucent claims that LWS segment income is up $17M for the quarter ended June 30, 2004, compared to same period 2003. Year over Year, LWS operating income is up $77M. You compared LWS operating income as a greater share of the pie in 9 months ended F2003. That is correct, but you fail to educate the reader, that Lucent’s recent claim of profitablity only occured during last fiscal year. You claim that LWS does not contribute to cash flow, where indeed, they certainly seem to. They may have been the only profitable segment last year at this time, hence the appearance of greater operating income.
3. According to industry sources and Lucent (you can find this at http://www.lucent.com/investor/fac04.html Lucent can claim the following:
a. global leader of CDMA – market share is nearly double of number 2.
b. LambdaUnite recently named number 1 in optical switching market.
c. Number 2 in worldwide DSLAM ports.
4. You discuss that wireline revenues are shrinking. I wont challenge that comment, but lets face it, that is hardly a company specific phenomenam. You also realize that wireline includes optical, LH, ULH and Metro. We all know that the market is lumpy. Lets wait a few more quarters, or see where competition is growing dollars in a different fashion than Lucent.
5. Wireless is strong, like you said. Also subject to risks if a slowdown exists.
6. You correctly mention that Lucent retirees benefits are unfunded by $7B. Of that $7b, $6.2B is tied into future health care benefits of retirees. That contract is up for renegotiation in October. Lucent has well under 17,000 union employees ( i have seen claims of under 3K now). On the other hand, Lucent has over 100,000 retirees (inherited from ATT). The leverage of a strike and an unfair resolution to Lucent is less now than ever before. Let’s see how negotiations with Union and Lucent go the next few months. This is not an easy situation for Lucent (who wants to do the right thing) and Union (which understands Lucents pain, needs, but also the needs of its members).
Lucent does not seem to be involved with actuarial gimickry as you alude to. These are complicated and not necessarily logical erisa and dol rules. Look at the financials and the 10K disclosures, to see further discussion.
You mention that Lucent is paying anything into the fund. It is my understanding that there was a VEBA trust set up to self fund the ATT retirees. This fund did not last as long as intended. Should waste away during the next 18 months, give or take only a few months based on market conditions.
You sarcastically mention that perhaps investors should just pretend this doesnt exist, just like Lucent. If you ever listened to Lucent presentations, this is an item that is hardly brushed under the table. You understand that Lucent inherited true “legacy costs”. Imagine if you were working to give your family 20% and old unknown founders 80%. You wouldnt like it. And based on your philosophy, you would at worst case to the founders, look for an amicable and fair solution. That solution would be a compromise to the both of you.
You distort by saying that Lucent adds fictituous pension credits, in the form of an accounting trick. They are reporting based on GAAP. If they reported any other way, it would be incorrect accounting. If you look at any of my Lucent reports, you will see that I clearly state that pension income should not be included in the valuation of Lucent. It is required presentation, but also leads to quality of earnings issues. Again, Lucent points this out during most if not all earnings and updates.
Part 2
7. You sarcastically mention “telecosm celebration” ending as a Lucent investor sees that when looking at earnings quality, that Lucent continues to lose money. Competent Lucent investors should already be aware of that . I gave a presentation on Lucent on Saturday, to a group of around 15 or so investors. The quality of earnings issue , retirement plan issue, and many other real and potential negatives were discussed. I urged any potential Lucent investor to understand these issues, or at least to have a coherent knowledge of the great risks involved. You can see this presentation at this link lucent3Q04.html
You mentioned that unless the market turns bullish , the pension credits will disappear soon. No matter what, as I mentioned before, these credits will disappear. They are part of a wasting trust. No matter what these credits have a limited life. You are missing the concept and as a reporter, you are in essence causing a form of FUD.
You mentioned “anerobic financials”. You might want to check the spelling before you mail the issue. No biggie, as my grammar and site is filled with spelling errors. I guess you meant to say that Lucent financials are without oxygen (anaerobic). I don’t fully disagree, but that is for a later discussion and based on future results. Your Corvis love, also has non existent financials when it comes to its life as an equipment company. In Corvis we can see a history of questionable revenue flows , limited and bankrupt customers, claims that never happened and a purchase of Dorsal post crash, which to show arms length accounting, presented pre-crash metrics.
8. You mention that Lucent if fighting declines in revenues in circuit switching. Lucent is fully cognizant of this, and includes that rapid deterioration in their future guidance. This has been acknowledged for quite a while now by Lucent. Voice networking for 9 months ended June 30, 2004 decreased by $217m, whereas optical revenues increased by $58M. Of course a net deficit, but nevertheless, IP revenues growing is a positive sign. Keep in mind that the growth is organic and not acquisition related. Lucent’s customers (service providers) are feeling the same decline in voice related revenues. Hence the emphasis by Lucent on IP, VoIP and convergence.
9. You mentioned that Lucent is fighting the declines in voice by hoping for a revival in ATM sales. Is that accurate. Are you familiar with the CBX 3500? http://www.lucent.com/products/solution/0,,CTID+2015-STID+10470-SOID+1562-LOCL+1,00.html This is an area, where I certainly leave my competence in the men’s room. My understanding is that Lucent is looking for the CBX 3500 to leverage existing frame relay and ATM services over an ATM core (is that well said for someone who has no idea what an ATM or frame relay is J ). I hardly have taken away from any analysis or meetings that Lucent is hoping for ATM to be revived. My take is that their focus is on IP technology and partnering when necessary to offer an effective solution to the telecom providers. I think the CBX 3500 allows for IP/MPLS solutions over either a legacy network with ATM or a pure IP network. I could be real wrong on that. Am I incorrect, or is this solution, if it is successful, the exact opposite of what you claimed about Lucent and ATM.
10. You mentioned that “Lucent projects revenue over next year or so should remain steady or increase slightly by about 5%”. That is hardly accurate information. Lucent’s guidance is the following. “ Expect annual revenues to increase on a percentage basis in the mid single digits for Fiscal 2004”. FYI, fiscal 2004 ends for Lucent on September 30, 2004. The guidance I quoted was given on September , 2004. You indicated that Lucent guided for a year or so, when indeed they mentioned that F2005 guidance will be given in October. Lucent has maintained that they expect revenues over the longer term future to meet or beat the industry CAGR. You can read their most recent guidance at this link http://www.lucent.com/investor/pdf/fac04_06.pdf
11. You mentioned that Lucent Gross Margins will be flat to down from its current low 40’s, to the upper 30’s. Lucent during its last conference call or two, mentioned that margins were tracking a bit higher than should be guided. I forget those issues as to why, I think restructuring and another slightly unusual issue. Hence, as margins were increasing, they continually reminded us what margins were being guided at. This is hardly bringing gross margins down. They also clearly mentioned that this guidance is near term guidance only. Gross margins as a % of revues were 10% in F2001, 13% in F2002, 31% in F2003.
12. You mentioned that operating margins were guided to flat to down 5% (and you mentioned pension credits). Lets get the facts correct. Lucent clearly identifies the pension credit effect, and how operating margins need to be adjusted downward, when doing projections. With that said, Lucent mentions, “expect quarterly operating expenses to be around $700M in the near term”. Please let the readers know where you got your information from. Here is the Lucent clearly states this about operating margins. “ continue to expect to report a full year of profitability for fiscal 2004”. I have no issues in you projecting your own views and thoughts, but I find it amazing that you claim that Lucent has guided towards your words. They absolutely have not guided as such.
13. Lucent has continued to state that their ultimate mid term goal is operating income of 10 to 15%. They ultimately hope for higher, but for now, that is their first goal. They have incorporated the wasting pension credits in all of their guidance.
14. You mentioned working capital liquidity. You failed to mention the following.
a. Balance sheet is getting stronger. Lucent debt was recently upgraded by Moody’s. Debt is still lower grade, nevertheless the picture is improving. Debt has been upgraded to B2 (highly speculative) from Caa1 (Substantial risk). Here is a link on our site, which has a table on debt ratings.
b. Cost reductions, debt buybacks and stabilizing revenues have helped make Lucent a stronger company. Unlike mid 2002, they do not appear to be an immediate or imminent bankruptcy contender. Here is a link on our site, where we discussed the deterioration of Lucent bonds during 2002. Lucent short term bonds were selling for nearly $0.30 per share. The same bonds are now trading over par.
c. Lucent has been consistent with their strategies over the last 3 years. They recognized and openly discussed their solvency issues. They laid out a game plan of restructuring and goal of liquidity. So far they have achieved those goals. More recently they have laid out a framework for continued profitability. Here is a link of ours, which details much of Lucent’s financial history since 2001.
d. Lucent bought back or recapitalized over $2.2B in debt since the fiscal fourth quarter of 2002. Fixed charges will be reduced by about $150M due to this.
e. Lucent took a charge to their deferred tax asset during 3Q02. This was done in accordance with SFAS 109. There has been recent industry talk that Lucent will be able to bring this asset on the balance sheet again. The prior write off was in excess of $5B. If the valuation allowance was materially reduced, Lucent would once again have a positive tangible book value.
f. Lucent recently announced that they have been approved for a tax refund in the area of $1B (including interest). Lucent previously recorded a receivable of $139M. A $1B unanticipated inflow, will be quite positive for Lucent.
The above was all taken from my report written the other day link lucent3Q04.html
15. You mentioned valuation analysis. I wont dig deep into that. Liquidation value is tuff to conceptualize, because we don’t know the value of any real estate, we don’t know the guaranteed payment of retirement plan obligations other than pension, once negotiations are finished, we don’t know value of goodwill with Bell Labs. You can see guesses I have put together on potential valuations at this link lucentmodel091604.html These are merely guesses, and at best I am using it as a current road map, which could change at any time.
Anyway, I just wanted to point out a few quick things. Ultimately, Lucent can hit the ground and declare bankruptcy. Again, I have not disputed your economic value or your valuation scenario. I merely dispute some of your methods, words, creation of FUD, allegations and misinformation.
Again, I respectfully request that you give me permission to share this one page article, when indeed you all write over 100 pages per year, with other investors, scientists, analysts etc. Hence, the board and me will benefit from potentially competent arguments that could correct either one of us or both of our thoughts or conclusions. I am hardly perfect and I apologize for any inadvertent errors I may have written.
Peace,
Ron”
Charlie wrote back a real nice note. I dont have to post it here. He mentioned a few issues, but did not dispute anything I wrote. Perhaps he is formulating an answer and maybe show me that I am materially wrong in my writings and interpretations. here is what charlie wrote. again, I have always enjoyed his work and his style.
” Ron,
Thank you for your post and reading the report so diligently. Much
appreciated!
You set up a straw man when you talk about past performance of the
GTR and the advertising. I dislike the ads very, very much and have
nothing to do with them — I do not own the business. I am an
underling. In my previous stint at the GTR (through Aug 2002) I did
tech analysis exclusively — no financials. I have taught myself
financial analysis over the past year by reading texts and by doing
(and making mistakes — lots); a guy has to figure out how to make an
income somehow, especially with 8 children. Well, I guess I am
agreeing with you on the ads and past performance stuff.
You may share my analysis with anyone you wish. I am flattered,
actually, since I am not a CPA or CFA or financial professional of
any stripe. By the way, I do not doubt that LU is reporting according
to the rules; GAAP accounting is very confusing with respect to
pensions and I still think the whole thing is deceptive.
The point is that I think there are better ways to invest in the
technologies and markets that LU represents. If I had money to
invest, I would not want to wait around for union negotions if I did
not have to.
I am sorry that you find GTR financial reporting incompetent; as I
said, until the past few months I had nothing to do with it. Since
then, if I have failed already, it is surely time for me to start
looking again. Oh well, maybe next time I’ll earn enough to actually
invest! (Never can tell.) :).
Best,
Charlie
April 8, 2004 Notes on Current Analysis write up of UMTS
Current Analysis is a subscription service, which is available at http://www.currentanalysis.com.
Current Analysis did a report dated April 8, 2004 on UMTS/GSM. Because of time allotment, and perceived immateriality of cut and pasting sections of this report, I took the liberty of supplying direct quotes from the report. We normally supply interpretations, but felt this data might be useful to technologically oriented Lucent watchers.
Current Analysis did label Lucent’s current perspective in this area as “negative/neutral”, status as “emerging”, surprisingly calls Lucent a “2nd tier vendor”, momentum as “negative” and vision as “neutral/positive”
Here is a link to Lucent’s UMTS W-CDMA solutions.
Here are notes of the report
” The GSM/UMTS Radio Access Network market consists of access equipment deployed by mobile operators to deliver mobile wireless Wide Area Network (WWAN) services to voice and data subscribers using licensed RF spectrum.
Key components of any Radio Access Network include the Base Transceiver Station (BTS), Base Station Controller (BSC), and Mobile Switching Center. The BTS (also known as the node B in UMTS terminology) sits on the edge of a wireless operator’s network and provides wireless connectivity with end-user terminals. BSCs (Radio Network Controller – or RNC – in UMTS terminology) manage and aggregate BTS traffic while MSCs groom wireless traffic onto the Public Switched Telephone Network (PSTN) and perform key signaling and mobile handoff functionality. The GSM air interface is a Time Division Multiple Access (TDMA) family of technologies developed as a second generation (so-called 2G) successor to the fragmented European analog systems of the 1980s. 2.5G improvements over GSM include GPRS and EDGE. GPRS is a packet-based system yielding data transmission up to 114 Kbps with typical user rates around 20-40 Kbps. EDGE is envisioned as a “stepping stone” from GPRS to UMTS which yields spectral efficiencies and data rates up to 384 Kbps with typical user rates over 100 Kbps. As GSM upgrades, both GPRS and EDGE can make use of existing GSM infrastructure and spectrum, though base station radio upgrades are required for the new functionality. Legacy GSM terminal equipment and services, however, remain supported.
In contrast, UMTS is a wideband Code Division Multiple Access (W-CDMA) technology designed to be the third generation (3G) successor to the GSM digital systems. CDMA-based radio interfaces utilize spread spectrum techniques to attain efficient utilization of the spectrum. A common signaling system is shared between GSM and UMTS to allow handovers from one type of system to another.
In some markets, GSM/UMTS mobile operators must compete with services based on CDMA and CDMA2000 technologies, one of several successors to the North American analog standard called AMPS. However, while CDMA2000 operates in the same narrow 1.25 MHz spectrum channels as older IS95 (cdmaOne) CDMA systems, the new UMTS W-CDMA-based systems use 5 MHz (wideband) channels. At the same time, GSM and its derivatives are the #1 global mobile wireless standard deployed in over 190 countries. As a result, GSM-based networks benefit from strong support for roaming and tremendous handset diversity.
” AT&T Wireless and Cingular Fuel Merger Mania: Fighting off a number of real and supposed competitors, U.S. GSM operator Cingular Wireless announced its plans to acquire AT&T Wireless on February 17th for approximately $41 billion. Mobile operator consolidation has often been cited as inevitable. However, Cingular’s move represents one of the first major moves in this direction, breaking an important psychological barrier. The merge of spectrum removes a roadblock to U.S. WCDMA deployments, creating an opportunity for infrastructure suppliers. This opportunity is only heightened by Cingular’s need for a competitive differentiator in the face of AT&T Wireless’s hemorrhaging customer base and Verizon’s EV-DO plans.”
” UMTS Moves Forward: Driven by licensing requirements and the improved availability of WCDMA devices (PC cards, at least), European operators finally seem poised to move forward with their long-promised UMTS launches. While vendor shakeups are not unheard of, most operators have already picked their UMTS suppliers, promising an uphill battle for everyone else”
” • Lucent should stress that PC cards are already the most compelling and appropriate UMTS device on the market. As with any new technology, the obvious demand for UMTS services today is in the enterprise, making the PC card a natural fit (as proven by its deployment in most recent UMTS launched across Europe). Even when mass market UMTS usage gains momentum, laptop users will still be a major 3G constituent meaning that PC card will still prove useful”
” Lucent and Nortel should stress their HSDPA capabilities and position HSDPA as an integral part of any UMTS launch. Both vendors have had their greatest successes in North America…a market in which HSDPA could prove important as a competitive reaction to EV-DO launches. Early momentum with HSDPA could allow them to capture a greater share of North American deals, and potentially leverage this success into new markets.”
” Lucent should stress the cost efficiencies of deploying UMTS outright. Any operator upgrading their network to EDGE today, must then consider future upgrades to UMTS and then to HSDPA. Each step involves CapEx and OpEx costs. Unless an operator is incredibly spectrum challenged, skipping EDGE allows them to immediately enjoy CDMA efficiencies while setting them up for HSDPA. For the U.S., in particular, HSDPA will be an important tool to combat EV-DO services from Verizon”
March 25, 2004 Notes on Current Analysis write up of Lucent’s DSLAM Portfolio
Current Analysis is a subscription service, which is available at http://www.currentanalysis.com
1. Lucent announced contracts worth greater than $300M on March 17, 2004 .
2. According to Current Analysis, Lucent had several new Stinger platforms on display at CeBit. One being the Stinger Compact Remote . Also micro-remote terminal 2 (MRT-2) and the mid-size (MS/MS+) platform (of which I could not find a link). The MS+ platform
3. Claims that recent European wins (see link above) and the new additions to the Stinger family, Lucent has provided validation for its DSL solution set. Claims that Lucent has “strongly reiterated its ongoing commitment to the DSLAM market. Claims that this is the 3rd enhancement to the Stinger portfolio since October 2003.
4. Calls the Stinger line, “stealthy” and they see Lucent as positive in this area. Thinks Lucent is remaining silent and stealth like, since the competitors have been publicly dissing Lucent over the past year and a half. They believe that Lucent will discuss the Stinger line only when contracts are announced.
5. Claims the European wins provide Lucent with market validation for its DSL solution set.
6. Claims Lucent is deploying its Stinger DSLAM platforms throughout the Telekomunikacja Polska Neostrada network.
7. Claims that Bell Canada is having the Stinger Compact Remote platform installed.
8. Lucent’s market share in the DSLAM market has dropped almost two points, from 9.1% in CY02 to 7.3% in CY03 according to Synergy Research Group. Current Analysis discussed that market share declined because of “overall market growth”, not because Lucent sold fewer units. Claims that Alcatel is the world leader of the DSLAM market and the Huawei is second largest. They mention that European competition is fierce. Competition includes Siemens, Marconi and ECI Telecom.
9. Mentions that North American SP competition is ADTRAN, AFC, Alcatel, Allied Telesyn, Calix, CIENA, Net to Net and Zhone. Mentions a few more, which I did not post.
January 23, 2004 Note to Employees from John Meyer, discussing earnings release for 1Q04 and LWS. We have not verified the authenticity of this letter.
Subject: LWS NEWSFLASH: Quarterly Letter from John Meyer
To the LWS team:
The first quarter of fiscal ’04 is behind us, and we are already
one-third of the way into the second quarter. On Wednesday, Lucent
announced its second straight profitable quarter and an 11 percent
increase in revenues for the quarter to $2.26 billion with overall
gross margins at 41 percent.
LWS revenues for the quarter were $466 million, a decrease of 1
percent from last quarter and a decrease of 4 percent compared with
the year-ago quarter, but $32 million over our plan. We continue
to see pricing pressure on the NAR Deployment space that is partially
offset by growth in the Maintenance and Professional Services.
We had some strong customer wins this quarter:
— Telemar of Brazil selected LWS to operate and maintain its
switching, optical and data access equipment.
— Imtech Telecom selected LWS to manage and monitor Eurofiber, a
large fiber network in northern Europe.
— LWS maintenance, deployment and professional services were also
major components in many other contracts, including Qwest,
Verizon, CODETEL, Portugal Telecom, and Bell Canada.
With respect to the Customer Loyalty Index, we continue to post
strong results. Our CLI reached 7.56, exceeding both our goals for
the quarter and the year, as well as the competitive average of
7.20 and best-in-class score of 7.55.
There are lots of positives. But as I said earlier in my New Year’s
Resolutions, we need to gain a more prominent position in Lucent’s
overall growth. We need to take on the challenge of becoming the
growth engine for Lucent.
One of the most important factors in any businesses’ success or
failure is communications. We need to ensure that all 11,000 of us
understand and are able to tell the “LWS story” to our customers,
other Lucent employees and industry watchers. It is essential we
speak with one voice and have consistent messages. So in the coming
weeks we will be rolling out a campaign to ensure all LWS employees
can “Walk the Services Talk.”
I recently talked to one of our most senior employees, who was
leaving Lucent due to the business requirement for a permanent
relocation out of state. It was a sad conversation, but it offered
some important lessons. He detailed numerous ways that we could do
the job better, and pointed out problems like ineffective equipment
delivery, people not taking their jobs more seriously or wasting
company resources. He finished by saying he felt comfortable telling
me all this since “he was leaving anyway.”
Too Late.
If you know a more effective way to do something, or if you know
anyone who is not delivering or who’s performing poorly, do something
about it. We are all responsible to tackle these issues. Take some
leadership, get angry, confront the situation and get it fixed. This
is not a game, and our lack of competitiveness in certain areas is
costing jobs and hurting people.
Don’t be a victim – be an owner!
In LWS, we have everything we need — the people, resources,
leadership team and reputation — to be the industry’s No. 1 Network
Integrator.
Now we have to go out and do it.
Stay Tuned,
John Meyer
October 22, 2003 Note to Employees from Pat Russo, discussing earnings release for 4Q03.
********************************************************
LUCENT TECHNOLOGIES TODAY NEWSFLASH
Wednesday, October 22, 2003
********************************************************
In This Issue:
* A Message from Pat Russo
********************************************************
Dear Colleagues,
Today is a day to feel proud. We achieved a significant
milestone. Thanks to the incredible efforts of every
individual at Lucent, we reported our first profitable
quarter since March 2000 and we generated positive
operating cash flow.
This doesn’t represent the work of just one quarter.
It’s the culmination of three years of your hard work
and dedication.
When we told investors in July that we were unable to
affirm that we would return to profitability in the
fourth quarter and that we would achieve a return to
profitability in 2004, I challenged you to do everything
possible to lower costs, improve efficiencies and achieve
the revenue levels that would support returning to
profitability in this quarter. And you did. It was the
combination of those efforts that delivered profitability
and positive cash flow in the quarter.
In a market where spending continues to be tight, we
recorded revenues of $2.03 billion, a 3 percent increase
over last quarter. We posted net income of $99 million,
or 2 cents per share — a 9-cent improvement over last
quarter. And we generated positive operating cash flow
of $145 million.
We achieved a 14-point improvement in gross margin to
43 percent — a terrific team achievement that was due to
the great work by the folks on the Supply Chain Networks
team and the folks in the product and services businesses.
In addition, a favorable mix of products and services —
as well as your continued focus on reducing costs —
contributed to the margin improvement. This margin
improvement helped us achieve profitability this quarter.
We reported revenue increases in every segment of our
business. For the second quarter in a row, Integrated
Network Solutions logged an increase in revenues —
5 percent over last quarter, and Mobility Solutions
revenues increased 4 percent sequentially. Our Services
business revenue grew by almost 5 percent for the second
quarter in a row, and we continued to expand our Global
Business Partner program. And while our U.S. revenues
were flat at $1.2 billion, our international revenues
increased 7 percent to $820 million.
We also exceeded our customer satisfaction targets.
Our results are the highest they have been in five years,
and surpassed the competitive average.
And, looking back over our fiscal year, there is
striking progress to acknowledge. Since October 2002, we:
* Reduced our total expenses by $5.6 billion;
* Improved gross margin by 18 points;
* Reduced our operating loss by $6.8 billion;
* Reduced our net loss from $11.8 billion to $770 million;
* Decreased our working capital by $600 million;
* Penetrated new markets with about $250 million in managed
services contracts;
* Established a clear leadership position in metro optical;
* Established strategic partnerships with Juniper and Cisco
and extended our relationships with Sun Microsystems and
EMC; and
* Introduced a host of new products, including the 5E-XC(tm)
high capacity switch, Flexent(R) OneBTS(tm) CDMA2000 base
station and Metropolis(R) DMXplore Access Multiplexer.
There were many great efforts throughout the business
that contributed to our results AND I’LL TALK MORE ABOUT
THEM ON THE ALL-EMPLOYEE BROADCAST TOMORROW. I’LL ALSO
TALK SPECIFICALLY ABOUT WHAT THESE RESULTS WILL MEAN TO
COMPENSATION. I hope you will join us tomorrow whether in
an auditorium or cafeteria at your location, on the Web or
on the phone.
LOOKING AHEAD
At this point, we have essentially completed our major
restructuring initiatives and implemented plans to broaden
our revenue base in areas such as services, government
contracts and outside the United States. I am not implying
that our work to return to profitability is complete. The
key for us is to sustain profitability over time. And we
still have a good deal of work ahead of us. We must grow
our top line while assuring that our cost and expense
structure supports profitability.
In the current challenging market environment, it is
likely we will still have some ups and downs on the way to
sustained profitability. So, like any business, there will
be adjustments as we respond to the market. We expect to
have both additions and reductions in our workforce as part
of the normal operations of our business going forward. And,
as always, we will continue to focus on managing our cost
and expense profile, while we increase our investment in
certain new product areas.
I mentioned earlier that our margin improvement helped us
reach profitability this quarter. While the margins represent
significant progress, a good deal of which is sustainable,
we do not expect to maintain this level for the year due to
anticipated quarterly shifts in product and geographic mix
and having fewer favorable items in the future. And while
we are not giving specific guidance for our next quarter, we
expect to achieve sustainable profitability some time in
fiscal 2004 at a margin rate of about 35 percent. We also
expect revenues to remain essentially flat or to increase
slightly year over year. And although we are seeing some
signs of stability in the overall telecom market, our most
challenging task — for us and for our industry — will be
top-line growth.
CREATING NEW POSSIBILITIES
Over the last six months, the senior leaders in Lucent and
I have been developing a five-year strategy aimed at growing
our business for the long term. We looked at who and where
we want to be in 2008 and worked a comprehensive plan to get
us there. Many people from across the company have had a
hand in developing this plan, and we further refined it at
our Officer and Executive meeting in early September.
I’ll talk more about the strategy during the broadcast
tomorrow and your leaders will be talking with you over the
coming weeks about your role in making it a reality. The
fact is, we are in a new stage in our business. We have
weathered the telecom “storm;” the worst is behind us and
we have made remarkable progress by any measure. Our
attention must be on winning in the marketplace, driving
top-line growth all the while assuring that we sustain
profitability and positive cash flow.
We have defined a longer-term vision and plan for the
company. We have a stated purpose: CREATING NEW POSSIBILITIES
TO ENHANCE PEOPLE’S LIVES BY TRANSFORMING THE WAY THE WORLD
COMMUNICATES. We have defined a set of aggressive strategic
outcomes and I am excited by the prospect of what we can
achieve together.
In closing, let me again thank you and congratulate you
for the incredible job you have done this year and for the
last three years. I know it has been a long and difficult
journey. There have been bumps and unexpected twists and
turns along the way, but thanks to your dedication and
perseverance, we have come very far. We have farther to
go, as always, and I look forward to continuing our journey
together as we work to create new possibilities.
Sincerely,
Pat
*********************************************************
October 22, 2003
Someone emailed me this from Changewave.com . I have not explored this in depth, but it seems to make for interesting reading.
ChangeWave Insight
Lucent (LU) Reiterate
(4) (Sell)
10-22-03
Lucent (LU) announced profits yesterday – a surprise for the street – due solely to cost cutting topping $5BN. The company reiterated a view of a profitable 2004 characterized by flat revenue growth and a continue focus on managing gross margins and costs.
LU had sales of $2BN in Q3, an increase of 3% over Q2 and a sharp drop from the $2.8BN in sales registered in Q3 2002. The company reported a surprise profit, the first in 14 quarters with net income for the quarter of $99MM or $.02 EPS.
Pat Russo, head of the company, said 2004 would be flat to a little better on the top line with some bottom line growth as well. She saw pockets of growth in metro-optical, broadband access, voice over IP and wireless equipment, paralleling our surveys of the industry throughout the year. Her CFO said gross margins, quite high at 42% in Q3, would decline in 2004 and probably average 35%.
Despite cost cutting, the company is still fundamentally unsound due to the unwillingness of management to withdraw from certain equipment markets and product line weakness in many of the growth areas specified by Russo. A telecom equipment survey completed this Monday evening shows a stagnant industry with the pockets of growth outlined by Russo and a very negative view on Lucent. Almost half of respondents see Lucent as the continuing big loser in the telecom equipment industry over the next 12 months.
That being said, cost cutting efforts have worked as planned and the company is solvent enough to survive flat revenues for at least a couple of years. The success of this cost cutting and growing signs of stability are prompting us to change our rating to (4) (Sell) on Lucent.
July 31, 2003
Here is a short summary on WI-FI from a friend :
802.11a/b/g – Wireless Ethernet; for pc to network connection.
replaces Ethernet as link to LAN. Not suitable for WAN, users share capacity.
unlicensed RF
802.16 – T1 replacement, fixed wireless, designed for static high speed
links; replaces T1, not suitable for plenty of mobile users. Uses some
unregistered and plenty of registered spectrum.
802.20 – 4gen mobile; high speed (3-4 M downlink), designed fro mobile
users, will handle roaming nicely. Speed like DSL/cable modem; behave
like a mobile phone (you can drive and retain connection). Uses licensed
bandwidth – this same like mobile phones. Can provide voice services as
VoIP. Considered a next gen for mobile phones industry – cheaper than
GSM/CDMA/W-CDMA-CDMA2000 in rollout and usage.
July 23, 2003
A Letter from Pat Russo to Lucent employees, dated July 23, 2003
Dear Colleagues,
This morning we announced financial results for our third
fiscal quarter and, as expected, we recorded revenues of
$1.96 billion, a sequential decline of 18 percent from the
previous quarter. While the revenue decline is clearly
disappointing, we made progress in a number of other areas,
and I want to highlight them here so none of us loses sight
of what we’ve accomplished.
* First, our net loss for the quarter was $254 million, or
7 cents per share, compared with a loss of $351 million
or 14 cents per share in our second fiscal quarter, and
a loss of $8.03 billion or $2.35 per share in the year-ago
quarter. Clearly, we’ve come a long way in a year.
* Second, we continued to see the impact of our cost reductions,
and this helped us post a gross margin of 29 percent.
Our ability to maintain this level of gross margin in spite
of a significant revenue decline shows the progress we’ve
made in this important area..
* We also achieved slight revenue increases in Services and
in every product unit in INS. And we used only a modest
amount of cash in the quarter. With the $1.6 billion we
raised with our convertible debt offer, we ended the quarter
with $4.9 billion in cash and short-term investments — more
than sufficient liquidity to fund our operations and business
plans.
These points of progress speak to the effectiveness of our
restructuring actions, and to the hard work and many long hours
you have spent supporting our efforts.
Over the past few quarters we had made clear progress and were
building momentum. With this quarter’s revenue, I would say that
we hit a speed bump, for sure. It’s disappointing, but not
something we can’t overcome. As we said last week, virtually all
of the decline quarter over quarter was a result of two specific
issues in the mobility business — reduced spending in North
America and an unexpected network acceptance delay with a customer
outside the United States. Without question, we are working with
the customer to get the necessary acceptances so we can recognize
that revenue as soon as possible.
While we have been working hard on the cost and expense side,
we have also been working on pursuing new revenue opportunities.
I have talked about our increased focus on Services, business with
the U.S. government and going to market through and with business
partners. I am pleased to say that we are seeing some positive
indicators in these areas we have targeted for growth. Our focus
on Services led to the $100 million managed services contract with
Telecom New Zealand to manage its 3G mobile voice and data network
— a huge vote of customer confidence in our capabilities.
Our aggressive efforts to win more government business led to
a $50 million contract with the U.S. Department of the Army for
network integration and professional services.. In addition, we
have submitted proposals to the U.S. Department of Defense for
the GIG-BE project — its all-optical network expansion.
Our partnerships and alliances with companies like Juniper have
allowed us to play more broadly in data networking and we now have
more than 50 Global Business Partners selling our products to smaller
service providers and enterprises, helping us expand our reach
beyond the top global service providers we serve directly. We’ve
also submitted a bid for the Verizon/BellSouth/SBC
fiber-to-the-premises project that blends our technology with that
of partners.
Yesterday we announced a $1 billion multi-year contract to upgrade
Sprint PCS’s nationwide 3G wireless network. This is a terrific win
for the wireless team.
Our focus on customer satisfaction continues to produce
improvements, with our on-time delivery for systems increasing to
97 percent and on-time delivery of materials-only improving to 87
percent.
Looking forward, we are continuing our practice of not providing
quarterly revenue or bottom line guidance. Having said that, I want
to assure that we are all aligned around doing all we can to get
back to profitability as quickly as possible. As I said last week,
I believe it is possible for us to achieve the revenue levels that
would support returning to profitability in this quarter. It is
without doubt a difficult challenge … but possible. All of you
have done incredible work over the last couple of years to get us
back on the road to profitability, and I am asking us to team to do
even more.
No matter where you are in the company, focus on doing everything
you can to help advance our revenue, cost, expense and customer
satisfaction efforts.
If our sales teams — with support from the product teams —
can achieve the high end of the range on revenue, we could achieve
profitability in this quarter. Bob Warstler has asked our sales
teams to step up to the revenue challenge of getting close to the
June 30 outlooks. Let’s do all we can to support the sales team
in this effort. Let’s drive hard to win known sales opportunities,
capture new business and get it recognized this quarter.
We’ve made outstanding progress in reducing our product and
services costs — work to bring those costs down even more. Look
at every dollar of discretionary spending with the hardest
possible eyes — ask yourself if you truly need to spend it. If
it is not necessary to meet a customer need or other critical,
urgent requirement — don’t spend it.
Returning our business to profitability by the end of this
quarter would be a significant accomplishment and go a long way
toward boosting our credibility and our own sense of progress.
I believe that we can do this and do it in a way that is
consistent with our values.
While we are working hard to grow the top line, we are
responsibly developing plans to further reduce our breakeven,
which continues to be necessary given the current revenue levels.
We’ll be focusing these efforts in four areas: improving our
overall processes and systems; continuing to find ways to reduce
our cost structure; lowering our interest and dividend payments
through our recapitalization efforts; and continued expense
prioritization.
I know that uppermost in your minds is how these actions might
affect jobs. Our target has been to reduce our headcount to
35,000 employees by the end of this fiscal year, and that hasn’t
changed. It is too early to say what kind of impact our breakeven
plans will have on headcount beyond that, but we will take a
balanced approach as we determine what is doable and necessary.
Be assured that every action we are taking is designed to ensure
that we are in the best position to serve our customers’ needs when
the market returns.
In closing, let me again thank you for everything you do every
day to serve customers and return our company to profitability. As
I said earlier, we cannot let this “speed bump” throw us off our
course or slow down our momentum. While the market remains
uncertain, our resolve to return to the company to financial health
does not. You’ve done a lot of great work to get us to this point,
and have done so in what has been the longest and deepest downturn
in the history of our industry. That alone speaks to your dedication
and tenacity, and I thank you for it. But our work isn’t over and
we’ll need all of that and more as we work to bring our company back
to sustained profitability.
I’ll talk more about our results and our plans during tomorrow’s
broadcast, and I look forward to talking with you then.
Sincerely,
Pat
March 6, 2003
Interesting link we found with Lucent mention. Click here . We are not responsible for the information or potential of misinformation in the text or link.
February 1, 2003
Cisco Relationship – More Information
We wrote on January 27, 2003 (see below) about the recent Cisco alliance. This will try to clarify a few of the issues.
1. The Cisco MGX8000 series will replace the Lucent’s PSAX 4500 platform in mobile deployments. The PSAX 4500 will continue to be used in wireline applications. The MGX8000 is designed to provide higher capacity voice aggregation with an eye towards migrating from voice over ATM to VoIP as mobile networks evolve towards all – IP architectures.
2. The more we read on this relationship , the more we see how important it is. Prior to this announcement, Lucent lagged in a full end to end solution in the migration to 2.5G and 3G systems ( due to the cancellation of the Springtide platform). Lucent appears to have given the message to customers and prospective customers the message, that if the Lucent solution is not feasible, then Lucent will go out and find and deploy that feasible solution. Lucent is known as having one of the strongest wireless capabilities, and this alliance sure seems to add just another strength. This relationship should assure customers and prospects that Lucent will deliver a full end to end solution, while at the same time let all know that Lucent will continue to focus its development of its core competency in mobility solutions.
3. This venture does not offer exclusivity to Cisco. Lucent has teamed up with a known and trusted name with Cisco, yet at the same time Lucent can look to work with other vendors in their pursuit of quality end to end mobility solutions. The Cisco MGX8000 is not without its weaknesses and Lucent can look to conquer those weaknesses with other alliances since the deal is not exclusive. For that matter, Cisco can improve upon its weaknesses to deliver core competency to this product and its Lucent specific applications.
4. This appears to be a positive venture for Cisco as well. It gives Cisco the foot in the door with a company that still does a run rate of $ 8.20 billion in revenues (Lucent). It is interesting to look below at our November 7, 2002 note on Cisco and Lucent rumors. Chambers (CEO of Cisco )was questioned on the potential of a Lucent buy-out by Cisco at that time and he responded, ” While I never say never…it’s as close as I can say to that”.
January 27, 2003
Capex thoughts
In reviewing some Capex figures for BellSouth and AT&T, I am reminded to watch the revenues. Right or wrong, I am using a Capex/ Revenue ratio for the telecom of 10 % – 15 %. BellSouth has guided towards 15 % in F2003. AT&T projects 2003 Capex to be down 13 % from 2002. AT&T commented that they expect conditions for Long Haul equipment vendors to remain challenging in 2003.
Stinger Stuff
Current Analysis came out with a report on January 24, 2003 which was incredibly complementary to Stinger FS and FS+. They call the product “very threatening” . Current Analysis goes on to mention that although Lucent closed its Westlake Stinger office, they still have generated substantial customer wins following the closing. Stinger has over 100 customers, including Qwest, Sprint, France Telecom, Nextlink, Telefonica and others. I have read that a competitor of Lucent in several areas, is having trouble competing with the Stinger series.
Miscellaneous Notes
1. I was happy with the revenue numbers. Still concerned with long term viability without a restructuring ( ie killing of the common shareholders). Many of the analysts felt the results fell below expectations (i.e. AG Edwards)
2. Gross margins being increased due to shifting of production to contract manufacturers.
3. Alliance with Cisco looks interesting. This will give Lucent the opportunity to replace the Springtide IP Aggregation Switch . We also saw it mentioned that this will help replace the TMX880 Multiservice Switch, yet we can not yet verify this. This also gives Lucent the ability to benefit the Services Group. The agreement covers :
A. Cisco’s Packet Data Serving Node (PDSN). PDSN enables the access of internet and intranet access via mobile solutions.
B. Cisco’s GGSN . GGSN enables wireless data services for GSM / UMTS and GPRS users.
C. Cisco’s MGX8000 Media Gateway and ATM aggregation products, which allow mobile operators to provision voice-over-IP (VoIP) and voice-over-ATM (VoATM) service on their packet core networks.
According to a report I just read, Wireless Mobility Solutions is estimated to be a $30.7 billion dollar market in 2003. CDMA is expected to be roughly 22 % of that market.
4. We have seen analyst estimates for 2003 revenues between $ 8.62 b and $ 9.60 Billion and 2004 between $ 9.10 and 9.90 billion . Our model is substantially higher ( 2003 at $9.856b and 2004 est at $ 10.80 billion. This is merely a guess and we would not be surprised to see numbers closer in line with the lower estimates.
5. It will be interesting to watch the $ 1.775 Billion shelf registration. Lucent could use this as an opportunity to clean up their balance sheet. Dilution would ultimately result, yet the key to Lucent’s future without a reorganization is in their balance sheet.
6. We expect the Reliance Contract to have a large impact in the March Quarter. You can see that the asset section in the balance sheet has a section called ” Contracts In Process “.
7. One brokerage firm expects Verizon Wireless to be waiting for Lucent’s new CDMA base station to be released. The firm expects that this will generate revenue for Mobility Services in the March quarter.
8. Lucent indicated in their conference call last week that cash would burn at a greater rate in the March quarter. It is expected that this is due to the ramping of China Unicom and Reliance. This is speculation on our part and has not been disclosed by Lucent.
9. March quarter is generally seasonally lower. It will be interesting to see if Lucent will meet its $ 2.50 billion guidance and if so, how that will be perceived going forward.
January 8, 2003
More Lucent Concerns
I read an interesting report yesterday written by Smith Barney (SSB), on Lucent and Nortel. SSB thinks that capital spending has bottomed and could improve during 2003. They think that Nortel will gain market share as they expect Lucent will continue to struggle financially. They believe that each downsizing at Lucent will give opportunity to others to gain share from Lucent. They mention that Nortel has stronger IP capability and is doing a better job than Lucent in Circuit To Packet technologies, particularly in Class 4/5 switches. SSB remains concerned with Lucent’s 2003 wireless revenues, since the completion of the Verizon and Sprint build-outs last fiscal year. SSB remains unconvinced that Lucent will achieve breakeven during F2003.
December 20, 2002
Major RFP (Request For Proposal) in the works ?
We wrote previously about GIGBE ( Global Information Grid Bandwidth Expansion) corvisnotes.html look at our writings on November 13, 2002. We have come across more information in regards to GIGBE and the telecom space. Project of about $ 875 M to be awarded in 2003. This will be a 2 year project. Sources believe that US based companies will have an advantage over international companies, such as Nortel and Alcatel. Larger companies such as Lucent and Cisco will have an incumbent advantage because of their large established businesses. Yet, we are still hearing Corvis being mentioned in the Long Haul Optical. GIGBE will focus on upgrading the Defense Information Systems Agency (DISA) communications network. The focus will be on upgrading the existing network to Next Generation Optical Networks, Ethernet technologies and increasing the security of the network. We have read that the RFP will be broken up into 3 components. We have read an estimate of the entire $ 875 M RFP to be sectioned evenly among Optical ( which includes Fiber, Metro and Long Haul Optical), Ethernet and systems integration. We have read a discussion that a further RFP will be awarded for additional connectivity, security and switching equipment. We were previously reading a lot of speculation that Corvis was in the running for much of the Long Haul portion. We have seen less discussion of Corvis lately in this realm. This does not at all mean that Corvis is not in the running. We merely have been reading a number of reports without a Corvis mention. This actually should not be considered uncommon as they are one of the smaller players, and could theoretically surprise many of the incumbents if they were part of the RFP awards.
November 7, 2002 3:00 PM
How is Cisco affecting Lucent?
Cisco reported earnings last night and it appears they are taking market share from some of the traditional equipment vendors in the Service Provider area. Of course Lucent fits that description. We do not know for sure if Lucent is losing market share in Wireline to Cisco, but the thought certainly makes sense. Cisco reported a strong backlog with Service Providers. Service Providers sales during the quarter at Cisco were flat. This is quite interesting as Lucent and other equipment vendors showed weakness in this arena. It is our concern that Cisco, which gives the appearance of being balance sheet strong, may take further market share in the Service Provider market. Keep in mind that Cisco has always been strong in the Enterprise sector and is now just starting to focus in the Telecom sector. One major brokerage firm discussed that Cisco may be gaining market share from Lucent in ATM switching .
The Wall Street Journal reported today that John Chambers, CEO of Cisco said the following in regards to Lucent. Chambers was asked if Cisco was considering buying part of Lucent’s switching business. Chambers answered ” While I never say never…it’s as close as I can say to that”.
As we have been writing such gloominess on Lucent over the last few weeks, we are reminded that Lucent still does have a huge installed base. Lucent has about 1/2 the revenues of Cisco. Revenues are still over $2.0 billion (we write with our fingers crossed). We still project revenues of just under $10 billion in Fiscal 2003 (which started October 1, 2002).
We mentioned that we had heard from industry sources that the metro optical tests in Verizon labs were not going well. If anyone has feedback on that, please let us know. We have not confirmed the status of the tests, nor have we confirmed that Verizon is unhappy with the testing.
November 6, 2002 11:00 AM
Multiservice Switching At Risk ?
It is our understanding that the GX 550 was complemented with incremental added features by the recently terminated TMX 880. Our question is how will Lucent convince it’s customers and prospects to base their infrastructure that does not offer nearly the same capabilities as its competitors. Our question is why wouldn’t a potential or even a current customer consider using alternative solutions. Our understanding is that the GX550 can be scaled from 4 to 10 times greater, by basically all other competitors. GX 550 has over a 25 % market share, but was recently pushed from the number 1 spot to the number 2 spot by Nortel. Perhaps the answer to all this is that Lucent is betting that the NGN (Next Generation Network) buildout is stalled, and until then the GX 550 offers a stable solution.
Competing products of the GX 550 are Nortel Passport 15000 and 20000 and Alcatel 7670 RSP . Lucent’s primary customers for the GX 550 are China Unicom, SBC, Embratel, KPN Telecom, WorldCom, and Verizon.
We recognize that the GX 550 has been in deployment for over 4 years. We have concerns that Lucent’s recent product and research and development cuts will hurt the future of Lucent. Yet, we recognize the financial demand and need for this measure to be done. We are more and more beginning to believe that Lucent’s primary focus in the future will be Optical Networking and Mobility Solutions. Time will tell if the new initiative to Professional Services will be a long term contender. It is our understanding (going from memory), that Lucent considers Professional Services to be a $ 53 billion dollar market.
We would like to again emphasize that these are merely our notes in monitoring Lucent. We are hardly experts in the area of the technical aspects of the technologies and products mentioned. We would welcome feedback regarding this note or any others.
November 5, 2002 10:30 AM
More on Verizon
Industry sources are saying that the Verizon announcement will not increase capital spending, merely reallocate it. It is still possible that Verizon will actually cut its 2003 capex budget. We are under the impression that the carriers which will be affected most positively by this announcement will be Lucent, Cisco, Fujitsu and Nortel. We have read that the deployment and action will be quick. Verizon will focus the build on its Metro Ring between New York and Boston, along the I-95 corridor during first half of calendar 2003. The full backbone will take approximately 18 to 24 months. Verizon will access “cheap” long haul capacity, that is currently available, on a leased basis.
New equipment spending for this deployment will probably consist of Metro DWDM, ATM, Frame Relay, SONET , GigE and VOIP (Voice Over Internet Protocol). Previously, Lucent was awarded the exclusive DWDM from Verizon. Industry sources have stated that Lucents MetroEON performed poorly in Verizon’s labs. This may give Verizon a reason to use Nortel in this quick build-out. Both companies are trying hard for the business. Lucent is asking for more time to show their products, whereas Nortel is pressing Verizon to let them do this metro build-out. We sure could use more information in this area. Nortel is currently Verizon’s vendor of choice for enterprise customers. we hear that Lucent is working closely with Verizon on this one, but if Verizon is looking for this build-out to be quick and effective, we fear that Nortel will be selected as the Metro DWDM provider.
On the other hand, Lucent is Verizon’s current key provider of ATM/ Frame relay services. With that, it is expected that Lucent would win most of that contract, followed by Alcatel. Lucent is also a main provider of SONET services, along with Fujitsu and Nortel. Nortel is limited in the region, so we expect much of the SONET portion to be awarded to Lucent. We do not expect Lucent to be the provider for GigE or VOIP.
Please keep in mind that most of the above is hearsay and speculation . We are not fluent enough or well enough “connected” to be relied upon the above discussion to be accurate.
November 4, 2002 7:00 PM
Verizon announces some changes
Verizon announced today that they would increase their capacity to supply data operations to large corporate and government customers. They apparantly did this to combat the decline in revenues that traditional telephone companies are seeing. Verizon will eventually provide network management, data storage, security, remote access, voice and data networking and optical networking. We read in an article , that Verizon was expecting to spend $1.0 billion on the infrastructure of this between now and 2005.
We see this as confirmation that voice is slowing and data networking is emerging. Carrier spending will migrate towards the data networking equipment sector. This should be a benefit to Lucent’s ATM and frame relay products.
This is not necessarily great news for Lucent, as Verizon is expected to purchase existing capacity from other service providers. This also might slowdown the anticipated revenues on voice products.
November 4, 2002 11:30 AM
Update
1. We mentioned in our November 1st comments that Lucent expects wireless to grow sequentially , Quarter to quarter. We would like to mention that growth is expected to be spread both internationally and within the USA.
2. Something to look for in F2003 would be the traction of Lucent’s DMX products .
3. It is our understanding that Long Haul product LambdaExtreme is being tested by AT&T. We have been studying this potential deployment for quite a while. It has been mentioned that CIENA and Corvis are also in contention. George Gilder http://www.gildertech.com (subscription needed) feels that Corvis is a major contender for that contract. Gilder feels that a Corvis long haul solution will cost $110 million dollars less than say a Lucent or CIENA solution and in turn save the Service Provider “some $ 515 million dollars in operating expenses over time.” . The Corvis product is the Corvis Optical Network (ON) . Obviously, this is something all Lucent investors should keep there eye on. As a side mention, Gilder also has hinted that Corvis may have another deal pending with a deployment in China. Given that Corvis only has a few customers; it would seem that any deployment announcements by Corvis would be material to Corvis.
November 1, 2002 11:00 AM
Waiting On A Sunny Day
We have been concerned with the recent SEC discussion. Although, Lucent states nothing new and that this is all “old news”, we remained concerned. Not much we can do , other than research and wait. We discussed some potentially aggressive issues in our note right below this one. We sit and wait on this, and hope it is a non issue. We realize the fragile nature of Lucent’s situation. There does not appear to be much room for missed guidance.
Anyway, here is what we have been hearing lately :
1. Lucent continues to expect year over year revenue declines of 20 %. This would bring F2003 revenue at around $9.80 billion. At this point we have no reason to comment on this guidance. We are concerned that Lucent has mentioned that Q1’03 would be the most difficult quarter on cash burn, and that leaves open the inherent possibility of downward guidance in Q2’03, which could occur in late February, mid March 2003, if it were to occur.
2. We have unofficially heard that Lucent expects mobility solutions to grow sequentially over the next two quarters , whereas wire-line business to recover in Q2’03. To us, this makes sense , since the mobility contracts have been announced with Reliance, China Unicom and such. It does provide more color of the guidance given on October 23, 2002. It is our understanding that Lucent basis for this guidance is based on conversations with customers, contracts awarded and anticipated deployment of network equipment.
3. We expect that Lucent will still have a shareholder voting for a reverse stock split at the annual meeting in February. This will give Lucent to act quickly if a delisting scenario becomes a reality. If you have questions, just let us know .
4. Lucent still does not expect a cash contribution to the recently under-funded pension plan during Fiscal 2003. Lucent does not know the extent of funding requirements for Fiscal 2004. If the investments of the pension portfolio stabilize then it has been brought to our attention that Lucent envisions a pension contribution for Fiscal 2004 in the $100 to $200 million dollar range.
5. Lucent bonds have crept up the last few weeks. Most bonds are trading at 50 cents on the dollar, which surprising enough is a major increase from the high 20’s to the low 30’s level right before earnings were released. We have no “feel” for what the bonds are saying. They are still trading at incredibly distressed levels, and they may have been artificially boosted with Lucent’s recent announcement of buying back several bonds.
6. Lucent expects to burn $1 billion in operational cash in Fiscal 2003. At this point we fully expect that Leap Wireless (still un-announced as the defaulted vendor) has already been factored into the F2002 numbers and is a non cash event in the future (assuming worst case scenario).
October 30, 2002 3:00 PM
Just Some Stuff
” Faith Will Be Rewarded ” ?
Some research we have been working on. Salomon Smith Barney (SSB) yesterday adjusted their 12 to 18 month price target of Lucent to 0.65, Lucent is up 14 % today to $ 1.15. We don’t like to read brokerage reports for the guesstimates of price targets. Rather, we like to read the reports to gather information and to use that information to “stress test” (hmmmm. a familiar phrase with Lucent lately) our own research. SSB is concerned that Lucent might be losing market share to Nortel and that Lucent is spending too much focus on their financial overhang. Most certainly these are concerns. Yet, don’t lose sight that Nortel is not in the best of financial shape either. Actually, it sure seems that the majority of telecom equipment suppliers are all in poor financial shape. SSB also sees a weakening of both revenues and margins due to the completion of the Verizon and Sprint wireless build-out. Wireless upgrades are high margin businesses and there is a concern that margins will drop with these subsiding. SSB is also concerned that there will be market share losses in specific industries , yet I didn’t notice any specifics. We have seen both Lucent and Nortel generate some large contracts in the Wireless and Wireline area over the last few weeks. We have heard the argument that SSB has not given credit to Lucent’s recent contract wins with Reliance, China United Telecom, KTF of Korea, MetroPCS & Tata Teleservices. Yet, if you look at Nortels recent wins, they also are substantial.
Basically what this all comes down to is the obvious. Will Lucent achieve her breakeven in Fiscal 2003. Lucent has warned many of the quarters over the last few years. We could be a mere one warning away from decimation. On the other hand, Pat Russo sounded confident in her words, and we are hoping of course that Lucent pulls through. It has been an interesting year with the spin-off of Agere, which if you recall was done ahead of an already altered schedule, due to achieving results in a quicker than expected time frame. What a weird scenario that a mere few months later, business conditions became materially worse and debt covenants were soon to be violated. Also interesting that the pension write-off (which is also a concern of ours) came at a time after the Agere spin-off. It is interesting to give thought whether the spin-off would have occurred if the pension write-off (Q4’02) and the deferred tax write-off (Q3’02) had happened prior to the spin-off. As long as we are discussing conspiracy theories (all in fun), why not put on the table the possibility that Lucent is keeping its share price and good news to a minimum until after the options re-pricing for its employees on November 25, 2002. Personally, I think the employees (the ones that are left at Lucent) deserve lucrative and well earned rewards. Of course the share re-pricing will cause dilution and of course the lower the price the better for the Lucent employees, but the remaining employees are the Heart and Soul of Lucent (sounds like a Springsteen bootleg from November 5, 1980) and I sure hope they get back some of the wealth that was driven away from them in recent years.
In a recent note, Merrill mentioned that there is hope for Lucent , but in a less optimistic manor than Lucent’s management believes. Merrill projects revenues of 9.36 billion , gross margins of 29 %, year end cash of $1.7 billion (Lucent has “stress tested” $2.0 billion) and breakeven quarterly revenues of $3.2 billion. Lucent’s goal of quarterly breakeven is 2.50 billion.
We continue to have concerns with Lucent. Many of these concerns are probably reflected in the stock price. Ultimately, a few years in the future, it would appear that Lucent could either be a 10 bagger or like many of its predecessors, could leave her investors with zero value. We respect and understand the task that management is undertaking. Management and Lucent appears to be doing as much as they can do. The task may prove to be ultimately impossible. Yet, there is a saying among a small community. The saying goes…”faith and hope will be rewarded” (you know, it sure seams true). We are concerned that Lucent via cuts in products and various research and developments will tarnish its revenue seed of the future. Unfortunately, Lucent doesn’t have the resources to commit to open pocket research and they are doing there best to strategically minimize the potential negative results of the cuts.
If you are reading these notes, please understand that much of these notes are opinion and subject to error. We are not soliciting or recommending Lucent stock. We are merely presenting information that we gather. As a matter of fact, Business Week mentioned us in an article last week http://www.businessweek.com/technology/content/oct2002/tc20021023_9924.htm. , they totally misquoted us, but we were happy and appreciative to be interviewed and mentioned. We currently have a long position in Lucent, yet like any of our positions, they are subject to change at a moments notice. We will not necessarily update a position change on this website . Any reader can always email us if you would like to know if we have retained , increased or eliminated our Lucent position, or if you just want to discuss Lucent.
October 28, 2002 8:50 PM
Alleged Internal email from Janet Davidson, President (INS)
October 23, 2002
(This letter has not been authenticated, yet we do consider it to be accurate)
LETTER FROM JANET DAVIDSON — I wanted to take this
opportunity to share with you the impact on INS from
today’s Lucent announcement on how the company will secure
its future and return to profitability by the end of 2003.
Be assured, the INS portfolio remains an important part of
Lucent’s strategy.
After extensive discussions with our customers, we are
putting in place plans that will tightly focus our product
portfolio and investments on market opportunities that are
near and clear – and which will help our customers expand
their existing networks and offer next-generation
solutions. In INS, these opportunities play to our
strengths in optical networking, circuit and packet
switching, the multiservice edge, circuit-to-packet
evolution and network operations software.
However, this also means that we will minimize investments
in some product areas until the market returns, and we
will exit selected next-generation products where, after
talking to our customers, it is clear that investment is
some years away. We have already started that process,
and I know that you are all hearing about people and
groups who no longer will be part of Lucent or INS. I
know that this is painful news, but it is a necessary
action to help us manage the difficult market conditions
and still compete effectively.
I know that you have many questions about how today’s
announcements affect you and the work you do. I plan to
hold an audiocast with the entire INS team soon where we
can discuss the shape and future of our business and I can
answer your questions. Until then, I wanted to share with
you what we are publicly announcing today.
In optical, we remain committed to the long-haul and metro
optical networking markets, and we will retain our
industry-leading optical networking portfolio. We are
focusing our optical R&D efforts on the Metropolis
portfolio, LambdaUnite and LambdaXtreme – while continuing
to support our existing optical solutions. We are well
positioned to profitably grow the optical business.
Our 5ESS product development strategy is unchanged, but we
will modify development schedules to match affordability.
Our service provider customers have massive investments in
their installed base of circuit switches that they plan to
leverage. We will continue to work closely with our
customers to help them evolve and expand the capabilities
of their 5ESS platforms to support next generation
technologies. Our IP Centrex offer from our AGCS
subsidiary is moving full steam ahead.
In the softswitch market, our customers have told us they
are not going to undertake a massive replacement of class
4 and 5 switches with softswitches in the near term. As a
result, we are deferring development of our class 5
replacement applications. Instead, we are going to focus
our softswitch investment on the wireless market where the
near term market opportunity is significant and clear.
In our Broadband Access group, we retain a strong Stinger
DSLAM portfolio and are continuing to enhance its
industry-leading IP Video over DSL capabilities and trunk
aggregation capabilities. We will continue to deliver
product enhancements for our AnyMedia Access System
customers. We will continue to complement our broadband
offers for service providers with our award-winning
CellPipe IADs. We are significantly reducing any
speculative R&D investment in the broadband access
portfolio until we and our customers have more visibility
into specific market needs.
In our Edge Access group, we will continue to sell
Universal Gateway products, primarily for remote access
and Internet call diversion applications. Given the
slowing demand for gateway-based VoIP applications, we are
deferring some product development in this area until the
market shows signs of recovery. We have cancelled
development of a new very large-scale trunking gateway,
because we believe that significant market opportunity is
several years out.
In the network core, we are committed to an MPLS
migration. We will enhance our GX550 multiservice core
switch feature set with MPLS and other features that our
customers have requested to complement their intent to
leverage their embedded networks. At the network edge, we
will continue to invest in the CBX and PSAX product
families to maintain our leadership position. We will
focus on the needs that our customers have expressed for a
next-generation multiservice edge product.
We will continue to invest in network management software,
which is very definitely a near and clear opportunity.
More than half of service providers operate three or more
independently built networks as a result of evolving
technologies, mergers, and acquisitions. We have tuned
our software portfolio to manage data and optical networks
as well as circuit networks. The NAVIS portfolio is a
multivendor platform – it handles multivendor networks.
Our new Navis iOperations software portfolio includes
product families focused on the three functional network
areas – engineering, provisioning and service assurance.
We continue to offer our highly regarded Access Point IP
Services Routers and Lucent VPN Firewall Bricks and
associated Lucent Security Management Server and IPSec
client software. These products are important to our
advantage BusinessPartners, who are gaining traction in
selling into the enterprise and alternative service
provider markets.
That’s a quick snapshot of the changes we have made to our
product portfolio to reflect the realities of the current
market. I believe it demonstrates that we still have a
robust and very competitive set of products in the areas
where we know our customers will be investing to expand
their existing networks over the near term. By making
these choices now, Lucent can make it though the current
challenging market and when the market returns, emerge as
the supplier of choice for our customers and an industry
leader in next generation technology.
Let me leave you with this thought — INS serves a market
that is estimated to be a $48 billion opportunity in 2003.
It’s a challenging market, but there are real
opportunities to serve customers. We have enough
liquidity to run our operations. I ask you to continue to
focus on serving our customers and assure them that Lucent
will be there for them for the long-term. And, I want to
thank all of you for your continuing hard work and
dedication in the face of a very challenging business
environment. I look forward to talking to you more during
our coming audiocast.
October 28, 2002 5:03 PM
Some notes on Lucent’s Stinger Product
It is our understanding that Lucent is placing its Stinger product and AnyMedia on hold during the focus on a quick return to profitability. Lucent will reduce its cash outlays and research to its DSLAM (digital subscriber line access multiplexer) and its DLC (digital carrier loop) product lines. Current customers will be supported.
Lucent has the highest priority to return to cash flow positive within a year. Lucent appears to be halting its research and development in these two lines. Lucent will remain a “player” in these markets. Lucent is the second largest vendor in the DSLAM market, whereas Alcatel has the number one market share. Lucent is also a key vendor in the international DLC market. This research and development freeze could allow Lucent’s competitors to gain market share.
Lucent will be directing its research and development to more potentially profitable and higher margin product lines. Lucent will focus development on the Stinger towards a “customer needed” basis. Lucent will continue to spend research money on the Stinger IP video over DSL and trunk enhancements. Lucent will deploy an OC-12 WAN (wide area network).
It is our understanding that the telecom community still considers Lucent a major competitor in the DSLAM and DLC market, and that Lucent is merely suspending research and development in these two areas. It has been presented to us that the necessary cash flow cuts that will be coming out of Lucent will secure a long term business continuation for Lucent.
We feel that the market share of Lucent needs to be monitored within these two product lines. We will do our best to monitor the competitors of Lucent as well as any customer wins or perhaps the competitors will also announce a halt to their competing product development. Some of Lucent’s competitors in the DSLAM market are Alcatel, Cisco, NEC, Innovia, Samsung , Siemens and Sumitomo. We have read in several reports that Cisco may consider buying Lucent’s broadband access product lines. Some of Lucent’s competitors in the DLC market are AFC, Alcatel, Marconi, Siemens and Zhone.
It is our understanding that Lucent generates close to $200 million annually in DSLAM revenues.
October 24, 2002 11:00 AM
Transcript of Russo Interview on NBR
10/23/02: Lucent CEO Patricia Russo Remains Optimistic Despite More Losses
SUSIE GHARIB: Meanwhile, at Lucent Technologies, another quarterly loss: $0.64 cents for its fiscal fourth quarter. The telecom equipment company also warned sales could drop as much as 10 percent in the current quarter. Scott Gurvey takes a closer look.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Lucent Technologies, it is now 10 losing quarters in a row, a sad chapter in the history of the biggest U.S. telephone equipment maker, and at one time one of the world’s most widely held stocks. In a conference call with analysts and reporters, Lucent CEO Patricia Russo called the quarter quote, “pretty ugly.” Its near- term forecast is also bleak: Lucent lost $0.84 a share. That compares to a loss of $2.59 in the same quarter last year. Excluding the fiber optic business the company sold in the quarter, the loss amounted to $0.64. The First Call consensus was a loss of $0.65. The revenue figures tell the story of a rapidly shrinking company. Sales of $2.3 billion are down both sequentially and compared to the previous year. Two years ago Lucent employed 100,000 people. By the end of next year it will be down to 35,000. Lucent says it will return to profitability at that time.
STEVEN LEVY, TELECOM EQUIPMENT ANALYST,LEHMAN BROTHERS: It’s feasible, it’s possible, and it’s credible. We’re not exactly forecasting it, but yes, it is possible. We need to see another quarter or two on the revenues to make it really believable. I think that’s one of the challenges that the company has is making this forecast of return to profitability believable.
GURVEY: The restructuring and job cuts have yet to help Lucent’s depressed stock price. What was once a telecom high flyer is now a penny stock. Lucent plans a reverse split early next year to keep from being delisted by the New York Stock Exchange. The company insists it has enough cash to carry it through the restructuring period, but some analysts are still concerned.
HASAN IMAM, TELECOM EQUIP. ANALYST, THOMAS WEISEL PARTNERS: There is one twist to Lucent, which is they have a very large traunch (ph) of converts, which is essentially debt, coming due in August of 2004. So by then, if the company doesn’t have enough cash, $1.6 billion or so, to cover that, then you could potentially look at a bankruptcy scenario.
GURVEY: Lucent finished the quarter with $4.4 billion of cash on hand. It expects that cushion to be down to $2 billion at the end of next year. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
GHARIB: Joining us now with more on the outlook for the company, Lucent Chief Executive Patricia Russo. Ms. Russo, it’s a pleasure to have you on the program tonight.
PATRICIA RUSSO, CEO, LUCENT TECHNOLOGIES: Hi, Susie. It’s good to be here.
GHARIB: I know it’s been a difficult year since you became Chief Executive and you said that it’s your priority to get Lucent back to profitability by this time in the year 2003. Some of the analysts I talked to today aren’t so optimistic. Can you talk us through your thinking on this?
RUSSO: Sure. You know, I would acknowledge, and I said earlier, this has been a very challenging year for the industry, it’s been a very challenging year for Lucent and it was a tough quarter, as I said. Having said that, as we go into our fiscal ’03, we are presuming that revenues will be down and against that sizing our business with an aggressive restructuring plan to reduce our quarterly break even to $2.5 billion. And we have a plan to return us to profitability, we believe, by the end of our fiscal year ’03. And we believe at that point we’ll have more than $2 billion in cash. So we have enough funding to support the needs of the business.
GHARIB: Well, let’s talk a little bit about the cash, because restructuring is a very expensive process. You’re at about $4.4 billion at this point. You’re going to be down to $2 billion at the end of next year. The question is do you have enough liquidity to do your turnaround plan?
RUSSO: Yes, we absolutely have enough liquidity. We called out today the uses of that cash through the year. And it’s important to note that as we return the business back to profitability, we actually will then move into a positive operating cash flow situation and have more than enough cash, we believe, to support the needs of the business.
GHARIB: Now, you recently announced a reverse stock split and for many investors this is an indication that maybe things aren’t going to turn around as soon as you thought. I mean what’s your reaction to that?
RUSSO: Well, what we said is that we were going to seek shareholder approval for a reverse stock split and that is to ensure that we remedy the possibility of a delisting because we will have fallen short of one of the criteria for the stock exchange. As you probably know, there’s a six month period to cure that and we thought seeking approval is a prudent, is a prudent thing to do at this point in time. Make no mistake about the fact that we absolutely recognize our job one is returning this business to profitability and positive cash flow. And we believe that the stock will take care of itself.
GHARIB: Well, you know, most people want Lucent to pull through. It’s such an American icon. There’s really no delicate way to ask you this question, but what are the chances that if you don’t hit your targets that you’re going to have to file for bankruptcy?
RUSSO: That is absolutely not on the radar screen. We have a plan to return the business to profitability. We have enough cash to do it. We have terrific relationships with customers all over the world. We’ve retained an industry leading portfolio. And I will tell you I am personally determined that we return this business to profitability and positive cash.
GHARIB: All right, now you said a moment ago that you’re expecting revenues to be flat this quarter, but that they’re going to pick up in the following quarter. What are your customers telling you? Are you seeing a pickup in the tech business?
RUSSO: Well, no. By the way, I want to be very clear, I am not trying to forecast the market. What I’m trying to do is convey that we see this quarter that we’re in as flat to down about 10 percent and as we enter the new calendar year, based upon what we know about deployments in, with certain customers, we expect to see a revenue up tick at that point in time.
GHARIB: So in terms of your business, then, is the worst behind you?
RUSSO: It feels to me as if from a revenue standpoint we are in our low quarter. But, again, that’s not a commentary on the market. As I said, our financial planning assumptions presume that our fiscal ’03 will be down in revenue about 20 percent. And even with an up tick in the first calendar quarter, we’ll still be well down over last year. So I think that is not inconsistent with views of the market.
GHARIB: As you look to all the restructuring you’ve been doing, you’ve been laying off and cutting jobs as much as you can, you’ve cut through all the fat and now we’re getting into the muscle, have you been looking at any other product areas which you may think of terminating and getting out of?
RUSSO: Well, Susie, we’ve tried to be very surgical and thoughtful in how we’ve been resizing the business. Of course, a fair amount of our resizing has been due to divestitures of certain assets and businesses, it has been due to volume reductions where the volume is, in fact, requiring fewer people. We’ve made some tough choices was respect to our product portfolio. And we’ve positioned it so that we’re, we think, lined up with where our customers are going to be spending the money. We’ve been doing an awful lot in driving improvements in our operating efficiencies and so, you know, we’ve been able — in fact, we just received our latest customer satisfaction surveys from this last quarter and they were actually up.
GHARIB: Well, that’s an encouraging note to end this discussion. We really appreciate you coming by. Thank so you much.
RUSSO: Thanks for your interest.
GHARIB: And we’ve been speaking with Patricia Russo, Chief Executive of Lucent Technologies.
October 22, 2002 11:45 PM
Things to expect during tomorrows conference call
1. same guidance, maybe a touch ligther on revenues.
2. will reiterate financial guidance for 2003.
a. revenue growth 10 – 12 %
b. gross margins 35 %
c. R&D 12 %
d. Sales and Marketing 9 %
e. General and Administrative 4 %
f. Operating margins 10 %
You can see some modeling at this link (notice how model is not using above numbers at this time)
3. Will discuss new products , such as LambdaUnite, LambdaManager, LambdaXtreme and TMX 880.
4. Will discuss new GigE capabilities.
5. TMX 880 ATM/MPLS will replace MSC 25000. They might discuss how this will be geared towards high capacity WAN switching.
6. Might discuss the current availability of OneBTS (this was touted as the best thing since sliced bread almost one year ago by Mobility Solutions.
October 22, 2002 12:15 PM
China Unicom is probably going to replace its GSM network with a CDMA network. Its current GSM network has 36.1 million subscribers. I don’t think that this was part of the deal reported yesterday. http://www.lucent.com/press/1002/021021.nsa.html Unicoms capex on the GSM network will be less then 20 % of capex. Unicom is increasing GSM carrier base in 2002 by 5 million customers, whereas it is increasing its CDMA base by 30 million.
Unicoms GSM spectrum is near capacity, hence CDMA will relieve that bottleneck. Apparantly CDMA handset costs are getting to practical levels.
October 18, 2002 5:45 PM Discussion of reverse split and bankruptcy
Lucent announced the intention to do a reverse stock split today. This will be voted by shareholders at the annual meeting in February. Interesting thoughts on this one. One thought is that Lucent management owns very little of their own stock. Institutions are large shareholders of Lucent. They own close to 42 % of the company. Lucent was forced to put a plan into place in getting their share price over a dollar , as required by the NYSE. Ultimately , this is the reasoning behind the potential reverse split. A reverse split does not cause dilution. It is a non event from a long term valuation perspective. We find it important , that Lucent stay listed with a major stock exchange. Hence, like Palm , ATT and Nortel, Lucent plans on a reverse split. There are some interesting theories behind a reverse split for Lucent, some of which we may or may not discuss in the future. Much of it would be speculation, and to be honest at this point we see more positives than negatives of this reverse split. Lucent had no choice as they can not afford to be delisted. We are anticipating that the split will be in the range of 1 share in 30 or 1 share in 40. We come to that number by extrapolating Lucents’ statement that they are looking for a share price in the $20 to $25 range.
Interesting to keep in mind that Lucent will have an options re-pricing towards the middle to end of November. A cynical investor might question if the stock price is being held down for that eventual re-pricing. We wrote about this re-pricing at this link. lucent063002CC.htm
11. A new stock option grant will become effective around November 25, 2002. This program will reissue option grants to individuals who were granted options between October 22, 2001 and April 22, 2002. Individuals will be given the grant of 123.2 M shares. The exercise price of these options will be at least equal to the FMV of the common stock at grant date. If the stock stays at $1.50 the dilution would be around $351M . The dilution appears to be less than 3 % of issued common shares. This does not appear to be shareholder unfriendly on the face of it.
To be honest, we are more concerned with Lucent’s ability to continue as a going concern. We would hate to see a bankruptcy, but of course , the potential of a bankruptcy filing certainly exist. Here is another article written by Reuters where we were quoted regarding a potential filing and the concerns of investors.
http://biz.yahoo.com/rf/021015/telecoms_lucent_1.html
excerpt …….. “We’ve heard too many companies say that they won’t go bankrupt and they did — very quickly after they said they wouldn’t,” said Ronald Redfield, portfolio manager at Redfield, Blonsky & Co., a New Jersey-based investment management firm that owns Lucent stock.
Lucent has stated that they have liquidity to survive this storm. Yet, we have heard this story before from the likes of WorldCom, Enron , Global Crossing and Exodus Communications. We would very much prefer that Lucent would give a detailed explanation (not a guarantee) of why they think bankruptcy will be avoided. We have discussed this often on our website. companies/lucent.html
Here is a section of one discussion :
” It is obvious that Lucent does not intend to file for Bankruptcy Protection, yet it is on many an investors and analysts mind. We would very much prefer that Lucent outright discuss this issue. We have seen claims of liquidity prior to filing bankruptcy from Global Crossing, WorldCom and Exodus Communications. Based on prior claims from these companies, we would like to hear Lucent directly discuss this issue. It would be a great source of information for Lucent to outline their intentions in detail of avoiding a bankruptcy filing. Please refer to our article dated October 2, 2002 which discusses the hints of bankruptcy in the price of Lucent’s bonds.”
October 11, 2002 10:35 AM
The following is an alleged internal memo from the CEO of Lucent, Pat Russo. This memo has not been authenticated, yet we do believe it to be accurate. The date of the memo is Friday , October 11, 2002.
********************************************************
LUCENT TECHNOLOGIES TODAY NEWSFLASH
Friday, October 11, 2002
********************************************************
In This Issue:
* A Message from Pat Russo
********************************************************
Dear Colleagues,
This morning we made announcements aimed at securing
the health of our business for the long term. In response
to the current market realities, we announced we are taking
our quarterly earnings-per-share breakeven level to $2.5 billion,
while working to reduce it even further before fiscal year end.
There are several reasons why we are taking these and
other actions, and I felt it was important to provide you
with the facts and a basis for interpreting them.
Despite the market challenges we face, we intend to
return to profitability in fiscal 2003 — this is our first
priority. To get there, we’ve reset our strategy and are
putting plans in place that are designed to leverage our
strengths, create additional revenue sources, and get us in
sync with customer spending levels and patterns.
We have the liquidity we need to run our operations.
As I said, my top priority is to return this business to
profitability and positive cash flow, and to ensure that
we survive this storm and end up as a leading player in the
industry.
Since rejoining Lucent, I’ve spent many hours — along
with other Lucent leaders — meeting with customers to
understand their needs and articulate the value Lucent can
bring to their business. Based on these, and other conversations,
we are tightly focusing our investments on the nearest and
clearest market opportunities that help our customers both
build and expand and enhance their existing networks to
offer next-generation services. We will play to our core
strengths in optical, circuit and packet switching, mobility
and network operations software, and increase our focus on
services.
Unfortunately, and painfully, our plan will require us
to eliminate 10,000 more jobs than previously announced.
We expect that our headcount will be at 35,000 by end of
fiscal 2003, but anticipate that the bulk of these reductions
will be done by March 2003. I know that this is very difficult
news to hear, especially given the incredible commitment and
dedication to the business that everyone has demonstrated
throughout these challenging times. But in order for us to
weather these industry conditions and compete effectively,
we must become a slimmer company.
We also said that we will record a charge of about $3 billion
due to a decline in pension asset value in our management
pension plan. Let me explain what this means. As a result
of declines in the equity markets, our pension fund for management
retirees is now considered under funded by accounting standards.
And while the plan still meets the requirements of ERISA minimum
funding rules, accounting standards dictate that we must take a
charge for that now.
Our management pension is secure and has the resources needed
to pay benefits and does not require cash contributions at this
time. And our plan for occupational employees is over funded.
What has affected our management plan is the unprecedented decline
in the stock market. And we are not alone in this. Many pension
plans throughout the corporate world have been impacted by the
slumping stock market.
It also is important for you to know that our pension plans
are funded through a separate pension trust in accordance with
the law and accrued pension benefits payable from the pension
fund are protected.
I want to set a context for each of the announcements we made.
First, we said that our plans will cause a per share loss
significantly below the 45 cents per share we forecasted for the
fourth fiscal quarter. The reason for that is, in light of our
revised forecasts for fiscal 2003 and our new breakeven plan
developed in the last few weeks, we re-evaluated several balance
sheet items, including inventory, which resulted in us having to
take additional charges. In addition, we also will record a
restructuring charge of approximately $1 billion.
Second, we cancelled our $1.5 billion credit facility to
avoid an anticipated default on our financial covenants. We did
this for good reason. We had no outstanding balance on our credit
facility, which was scheduled to expire in February 2003. Since
we did not expect to draw on it before it expired, we thought it
made the most sense to cancel the facility now instead of risking
the anticipated default on our covenants. We are in discussions
now with our bankers concerning a new and smaller credit facility.
It is important for you to know that even without this credit
facility, we have sufficient liquidity to fund our operations and
business plans. As of Sept. 30, we had cash and marketable
securities
of $4.4 billion. And, with our new restructuring plan and a lower
breakeven level, we expect to have more than $2 billion in cash at
the end of fiscal 2003 without utilizing any credit facility.
These are challenging times. We are in an unprecedented
industry
downturn born out of the unprecedented excess capacity that was
built
in the 90s. But the excess capacity we see in the market today
will
work its way out. This industry will stabilize and ultimately
recover.
Even in the face of intense competition, we are securing
some significant new contract wins — particularly in the metro
optical and mobility spaces — some of which, unfortunately, we
are not able to announce just yet. And we continue to
aggressively
pursue every profitable opportunity. Our increased focus on
services
and our attention on government opportunities are two areas of
revenue upside.
The actions we’re taking now will enable us to survive this
downturn, serve our customers’ needs and come through positioned
to participate in the market recovery.
I’m looking forward to providing you with more details about
our strategy and plans during our All-Employee Broadcast on Oct.
23.
Meanwhile, I thank you for your dedication to the business and the
passion I know we all have for Lucent’s success.
Sincerely,
Pat
*********************************************************
September 26, 2002 03:30 PM
Notes from Merrill report
1. concerned of further major revenue decline in F2003
2. most CDMA carriers have already done the bulk of their network investing
3. Lucent could face liquidity issues in 2004.
4. Mobility business shows promise 2004 and beyond
5. concerned that Lucent’s focus on CDMA and 3G will lead to revenue shortfalls as spending is restrained.
6. Projected revenue for F2003 :
INS $4,901M
Mobility $ 4694
Other $ 220
Total $ 9,814M
7. believes that once carriers roll out 3G infrastructure , that Lucent could be in a great position, but until then , they are vulnerable.
8. Reliance in India may spend $1 billion on CDMA. Australia’s Telstra is also considering CDMA upgrade.
9. Claims that Dell Oro does not see 3G taking hold until at least 2005.
10. Questions solvency. Remember Lucent as of June 30, 2002 had $ 5 billion in cash, Merrill expects that cash will dip below $ 600 mil by December 31, 2003. Merrill’s model also includes gross margin improvement. Merrill’s model includes an inflow of $ 225M from Corning. This is currently being negotiated as Corning would like to pay in stock.
11. At a price of $1.00, Merrill expects 35 % dilution in respect to the converts in August 2004.
12. Merrill believes that Lucent’s customers have an interest in keeping Lucent alive.
September 24, 2002 11:10 AM
The following is an internal memo from the CEO of Lucent, Pat Russo. This memo has not been authenticized, yet we do believe it to be accurate. The date of the memo is Friday , September 20, 2002.
Dear Colleagues,
A lot has happened since we provided guidance for this
quarter last Friday. I received e-mails from a number of
you, I was with about 200 employees in an all-employee
meeting with the CALA region team on Wednesday and, as you
may know, I spoke with a number of reporters as well. In
all of those conversations, I spent my time addressing the
very issues that no doubt are uppermost on your minds. I
thought it would be helpful to share some of those same
thoughts with you as we all work through these most
challenging of times.
I have said before and I will repeat — our industry is
experiencing an unprecedented period in its history. The
depth of the decline in spending by service providers around
the world and its duration were not well anticipated by any
of us in the industry or any who follow it. I know that when
you are working as hard as all of us are, continued shots
over the bow from various fronts can be discouraging and
frustrating, especially given the very good progress we are
making across the business. Having said that…know this:
– Communications is the backbone of the global economy.
Our industry, therefore, is a critically important one
and will ultimately stabilize and return to growth.
It is uncertain how long that will take, but I believe
this industry will work through the issues affecting it.
– Our strengths and capabilities are considerable, including
our customer relationships; the breadth and depth of our
networking expertise; our position in a number of market
areas; our technology; and our extensive Services capabilities,
to name a few. We were recognized yesterday by Purchasing
magazine for our leadership in Supply Chain management —
a critical differentiator for us as we go forward and one
of the many levers that will enable us to achieve the levels
of efficiency and effectiveness needed. SCN’s achievements
are also an excellent example of the good work going on across
the company.
– Our restructuring efforts are continuing to help, even with
depressed revenue levels. Through your efforts, we have
reduced our costs and expenses significantly, improved our
systems and processes, and improved our balance sheet while
improving our delivery performance to customers. Clearly,
given the conditions in the market, we must continue the
efforts we have underway and do even more.
– I spend a good deal of time talking with our key customers.
When I do, I continue to validate what is important to them
and identify ways we might help. I assure them of our resolve
and commitment to be the best at serving their needs and I tell
them that we will unquestionably survive this industry storm
and emerge a stronger company. They know that.
– We are focused on taking the actions we need to return our
business to profitability. That means we will need to both
lower our revenue breakeven and — with every ounce of energy
we have — profitably win more of what our customers are spending.
Even with the current decline in spending, our market remains
very large. We see clear opportunities to win a bigger piece
of the market by selling more of our Services capabilities,
an area where we are focusing more of our efforts. We are
also pursuing more opportunities with the federal government
given our history there, our knowledge and expertise in secure
networks and the interest the government has in enhancing its
communications infrastructure. These are examples of things
we are doing to affect the top line, while aggressively working
to reduce our costs and expenses. We have recently won a few
important contracts, and we will announce them when appropriate.
Focusing on winning — even in tough times — is the most
productive use of our energy.
I was asked by a few of you…are we going to make it? The
answer is an unequivocal “Yes.” Reflect on what we have done so far.
We have done everything we said we would do that has been within
our control. We have met every target for cost and expense reduction,
and improvements in our balance sheet thus far. And while we clearly
have to do more, there is no question that we will make it. When
speaking with reporters earlier this week, I said that we will take
the actions we need to restore this company to profitability and we
have the cash to do it!
I know it is difficult to stay focused when you see our stock
price dip below one dollar and constantly hear and read negative
news about our industry. But the messages about the industry and
the players in it are not likely to change until there is some
evidence of stability and then recovery. And it is important to
remember that stock price follows performance. The best use of
our time is to ensure we are working everything we can control,
addressing every aspect of our market opportunities and our financials
so that we return this business to profitability and positive cash
flow as quickly and prudently as we can.
We have demonstrated our resolve and our commitment to execute
the plans we put in place. We have a tremendous set of assets,
a strong foundation of customer relationships and the best people
in the industry. We are respected as a leading player in our market.
So I ask you all again to stay focused on what matters most to our
success. I thank you for all you do each and every day, I thank you
for your spirit, as it counts more than ever, and I thank you for your
continuing commitment.
I am looking forward to speaking with you all and updating you
on the business during our all-employee broadcast in October.
Sincerely,
Pat
August 26,2002 3:15 PM
If you look at our post on August 15, 2002 part E, you will notice we wrote the following :
”
2. what is going on with the Stinger product . Westlake, CA operations were closed and 100 were laid off. The remaining Stinger product will will work out of NJ. What effect will that have on current and future customers. Sprint announced today that they expanding its DSL footprint and product set. Interestingly enough, I am under the impression that Sprint recently announced it would be decommisioning DSL equipment in 32 markets and would “deliver service via an alternative platform”. The alternate platform is Covad.
All in all , I am currently thinking that the Sprint activation of 94 markets could be either Lucent neutral or positive. Perhaps Covad could embrace Lucent. I am not very familiar with that part of the market to be relied upon for any technological discussion. I have been under the impression that the DSL market is slowing down. Until I hear differently, that is the stance I am currently assuming.”
We have recently been informed by an undisclosed source and we have not confirmed this, that Sprint has removed the Lucent Stingers from their network and replaced it with Covad equipment. The Covad equipment being used is Alcatel DSLAM equipment. Our source tells us that this was done for business reasons and that Sprint and Lucent remain close allies.
August 26,2002 3:00 PM
Lucent Insiders Buy Shares
Lucent Chmn, CEO Bought Total Of 1.35M Shares Aug 16 >LU
08/26 12:24 pm (DJ)
Story 2997 (CFDAY, LU)
WASHINGTON (Dow Jones)–Lucent Technologies Inc.’s (LU) chief executive and its chairman bought a total of 1.35 million shares of the company’s common stock Aug. 16, according to Form 4s released Monday by the Securities and Exchange Commission.
Chairman Henry B. Schacht purchased 1 million shares for $1.43 apiece. As of the date of the filing, he directly owned 1 million common shares.
Chief Executive and President Patricia F. Russo purchased 350,000 shares for $1.42 and $1.43 each. As of the filing date, Russo directly owned 363,004 common shares and indirectly owned a total of 350,000 shares through her 401(k) plan and through her husband.
Shares of Lucent Technologies, Murray Hill, N.J., recently traded at $1.61.
The Wall Street Journal reported Friday that Lucent may cut another 10% of its work force, citing a person familiar with the company’s planning. Lucent employs about 50,000 people, down from a peak of about 155,000 in 2000.
-By Ben Siegel, Dow Jones Newswires; 202 -628 -7689
(END) DOW JONES NEWS 08 -26 -02
12:24 PM
EXECS BUY LU STOCK
Lucent’s chief executive and its chairman bought a total of 1.35 million shares of the company’s common stock Aug. 16, according to Form 4s released Monday by the Securities and Exchange Commission. Chairman Henry Schacht purchased 1 million shares for $1.43 apiece. Chief Executive and President Patricia Russo purchased 350,000 shares for $1.42 and $1.43 each. [Dow Jones, 8/26] Lucent Chief Operating Officer Bob Holder purchased 150,000 shares of Lucent common stock at $1.44 on Aug. 19, bringing his holdings to 531,957 shares. Lucent Board Director, Robert Denham, purchased 40,000 shares at $1.47 on Aug. 19, bringing his holdings to 65,000 shares, according to Form 4s. [Dow Jones, 8/22]
August 26,2002 11:30 AM
Looked at the bonds this morning. Lucent bonds are still weak, yet they have most certainly shown a stabilization from several weeks ago. Bonds have actually increased in value recently. We believe the reason for the increase is due to discussions of Bill Miller from Legg Mason Value Trust supposedly buying some telecom bonds. We like to use bonds as an indicator for future solvency predictors. This task has been more difficult over the last few months, since the Junk bond market has been crushed and perhaps sending off false signals. As always, keep your eyes on the bonds.
Rating Qty Min Issue Coupon Maturity Yield LY Price
B2 / B+ 160 20 Lucent Tec 7.250 07-15-2006 20.738 20.738 65.188
B2 / B+ 100 Lucent Tec 7.250 07-15-2006 21.252 21.252 64.188
B2 / B+ 100 Lucent Tec 5.500 11-15-2008 16.836 16.836 57.313
B2 / B+ 67 Lucent Tec 7.700 05-19-2010C 16.947 16.947 60.313
B2 / B+ 105 Lucent Tec 8.000 05-18-2015C 15.882 15.882 57.438
B2 / B+ 20 20 Lucent Tec 8.000 05-18-2015C 15.071 15.071 60.438
B2 / B+ 100 Lucent Tec 6.450 03-15-2029 13.473 13.473 49.500
August 21,2002 1:15 PM
Andrew Corporation indicates changes to purchase agreement
It appears as though Andrew Corporation is going to be changing some power amplifier purchase agreements with Lucent. The 10-Q of Andrew indicated that there was a renegotiation of Lucent’s purchase commitment to $275 mil from $350 mil. It is rumored that Lucent will push to have the commitment reduced to $225 mil for 2002 and $200mil for 2003 from the the current $350 mil level.
Quick Thoughts on Discontinuance of Lambda Router 10:37 AM
Lucent is just another Tier 1 data networking company that is discontinuing or postponing development of an all Optical Switch. The optical switching market is in current turmoil as carriers scramble to find cash. Carriers have been cutting capital expenditures and Lucent has made a decision to halt funding a project that probably would not produce immediate or near term results. It appears that Lucent has merely accepted the realities of the business environment and the market condition of the industry they sell to. Lucent has kept the door open to reinstitute all optical switching in the future. Lucent is what is called a Tier 1 vendor. They and many other Tier 1 vendors (Nortel and Cisco) have also discontinued their plans for an all optical switch. Equipment vendors resources are at a premium and it seems as though Lucent is focusing its efforts on the immediate needs of the market. The LambdaRouter had only a few sales (Global Crossing (who is in bankruptcy) and Japan Telecom). The financial penetration of the LambdaRouter was not yet evident. We were told by Lucent that prior to and including August 12, 2002 that there were several other trials in the works, one of which was France Telecom. We do not know the status of these trials after the announcement to discontinue the switch. We have read in several articles that the LambdaRouter was criticized for its size, power consumption and attenuation (decrease in power of the signal). We have heard Corvis Corporation claim that the LambdaRouter wasn’t even an all Optical switch. It is of our opinion that Lucent has merely accepted the market as it stands in making this decision. We view this decision as Lucent positive. We make that statement because we feel Lucent is accepting realities and quickly realigning themselves as a premier vendor in the industry. The industry has changed tremendously in such a short period of time. Lucent has increased their window of liquidity by cutting the expenses of this project. We do not feel that competitors will dedicate great efforts in developing all optical switch products, hence leaving Lucent on a level playing field. We are hoping that the postponement of LambdaRouter will help Lucent focus on resources of products that are more market focused, such as the LambdaUnite. We do not consider Lucent to have failed in the decision to postpone or possibly eliminate the LambdaRouter. We will readdress this issue when the industry and visibility picks up.
August 19,2002
Lucent discusses Lambda Router and other Optics
The following is from a discussion we had with Lucent over the past 2 business days
As you mentioned, Lucent will no longer sell the current version of the LambdaRouter. When the core market picks up, we will make a decision as to whether to re-invent a new LambdaRouter with newer technology.
We have met and will continue to meet with customers to determine how we can best support them or discuss transitions to other products.
Lucent will continue to focus our development efforts on the products in our portfolio that help our customers lower network costs while offering new services, like the LambdaUnite(tm) MultiService Switch, our next-generation optical transport system and switch which allows customers to seamlessly integrate existing backbone and metro optical networks.
Lucent remains committed to the all-optical switch product concept and to MEMs technology. We intend to continue advancing this technology through fundamental activities in our research organization and will be well positioned when the market returns.
The Lucent Stinger DSL platform is not being discontinued. We are consolidating facilities, and
will be moving work on the Stinger DSLAM out of Westlake, California, to other locations.
We will continue to sell and service our current Stinger DSL platform and all of its current
solutions, such as IP video over DSL. We are not discontinuing any current services, products
or applications.
August 16,2002
1. some notes I took this morning
a. Foundry Networks management confirmed that sales to Lucent are probably going to decline from the 11% of revenue level that Lucent contributed in the June quarter, but Lucent is still purchasing equipment for its internal network as well as Lucent’s reseller operations.
b. . Within the 10-Q filing, LU reported it had off-balance sheet financing that if consolidated, would increase the debt listed on their balance sheet by up to $450MM. Roughly $100MM of the total was attributable to a synthetic lease.
2. This is an alleged and unconfirmed letter from Pat Russo to all Lucent employees on August 13, 2002
********************************************************
LUCENT TECHNOLOGIES TODAY NEWSFLASH
Tuesday, August 13, 2002
********************************************************
In This Issue:
* A Message from Pat Russo
********************************************************
Dear Colleagues,
We made several announcements in the last few days and
I wanted to clarify those announcements and put them in
context for you.
First, as required by a recent Securities and Exchange
Commission (SEC) ruling that you have probably read about
in the press, Frank D’Amelio and I have unconditionally
certified that our financial statements for fiscal year
2001 and the first, second and third fiscal quarters of
2002 accurately represent our results. We were one of
almost 1,000 companies that were required to have the CEO
and the CFO personally certify our financial results for
that period. We did this in advance of the deadline, which
is August 14. Ensuring that our financial statements are
accurate is not new to us. We’ve always given our financial
statements extensive and thorough reviews before they are
issued. And today’s filing is just a confirmation of that
fact.
Second, we filed our quarterly 10Q report today. As you
may know, publicly traded companies are required to file
their quarterly financial statements with the SEC after the
close of each quarter. In our filings, we are always
forthcoming with any information that could be considered
material to our business, including any pending litigation
or investigations.
For that reason, we included in today’s filing that the
U.S. Attorney’s office in Newark, New Jersey informed us
that — while Lucent is not the target — it is conducting
an investigation into matters that we discovered and voluntarily
reported to the SEC on Nov. 21, 2000 and publicly disclosed
in a press release that day. We understand that the
investigation primarily concerns a software licensing agreement
entered into between Lucent and Winstar Communications at the
end of Sept. 2000. As you know, we have been cooperating with
the SEC’s investigation and will cooperate fully with the U.S.
Attorney’s investigation as well.
Many of you may recall that two years ago we identified
a revenue recognition issue that impacted our fourth fiscal
quarter 2000 results. Consistent with our values, we made the
issue public through a press release, informed the SEC of our
efforts, and conducted a complete review of the issue with the
assistance of outside counsel and auditors.
We found that, in one case, there had been misleading
documentation and incomplete communications between a sales
team and our financial organization with respect to offering
a customer — Winstar Communications — credits with a software
license. This was done with clear disregard for the revenue
recognition policies that we had, and still have, in place.
In line with our business conduct guidelines, we took appropriate
disciplinary action, including the dismissal of an employee.
You might be asking yourself: Why is this happening now,
why is the U.S. Attorney looking into a matter that occurred
two years ago, and is there something new that triggered the
investigation? The fact is that there is nothing new.
Investigations take time. That’s just how the process works.
In every instance we have worked hard to assure that we
behaved appropriately, responsibly and with integrity. That
will not change going forward. Our values and our commitment
to the highest standards of business conduct are more than a
source of pride; they have proven to be a source of strength
and good business sense.
Finally, as I told you yesterday, we announced late Friday
that we reached a tentative out-of-court settlement of a class
action lawsuit concerning the leasing of consumer telephones.
We agreed to settle the litigation for up to $300 million in
cash, plus AT&T pre-paid calling cards. The cards will be
donated to a variety of charities. We will share the cost
of the settlement — which is subject to court approval — with
AT&T, Avaya and NCR under a formula developed at the time of
our respective separation agreements.
As many of you may recall, this lawsuit was first filed
against AT&T six years ago. The plaintiffs, who were seeking
billions of dollars in damages, accused AT&T, and later Lucent,
of misleading actions regarding the leasing of telephones and
the charges for those leases. We sold the consumer leasing
business two years ago, but continue to manage it under contract.
We felt that we had a good case. But, in the end, we felt
a settlement was the prudent and best course of action to put
this matter, and other similar lawsuits, behind us and avoid
protracted and expensive litigation. We should consider this
as an outstanding legal issue that we have put behind us.
As a result of this settlement, we will recognize a charge
of $162 million for our portion of the agreement. Since the
settlement came after we released our third quarter earnings,
but before the filing of our quarterly financial statements with
the SEC, the charge will be reflected as a subsequent event in
our third fiscal quarter when we file those results today in the
10Q report I mentioned earlier.
As always, I remain committed to keeping you informed about
issues and events that affect our business and to provide you,
as best I can, with the reasons why we take certain actions.
Sincerely,
Pat
August 15, 2002
A. Read a report dated August 13, 2002 by Legg Mason. (my guess is this report is prior to reading of 10Q )
1. mentions that Lucent has products in virtually every communications product area, from access technologies to fiber optic transport.
2. projects revenues of 11,229.8 for Fiscal 2003 and EPS of (0.67) for Fiscal 2003
3. feels that Lucent will be one of the biggest recipients of capex spending (when it returns)
4. indicates that company must continue to invest in research and development (Bell Labs)
5. mentions a strength of Lucent is its multiple product lines , which are delivered to large Service Providers.
6. indicates that Lucent’s 5ESS circuit switches handle more than 1/2 of all United States telephone traffic.
7. believes the company will survive and return to profitability.
8. interestingly enough Legg Mason mentions two Lucent products which have been discontinued. One is LambdaManager , which was discontinued a few months ago and Lambda Router, which was discontinued today (see link)
http://www.lightreading.com/document.asp?site=lightreading&doc_id=19801
9. staying focused on top line, since other measures are rather meaningless at the moment.
B. Found this on the net the other day. This a few words on the recent 10Q filing (8/13/02)
*Lucent is a lessee under a $100 million synthetic lease
agreement for real estate. The synthetic lease does not appear on the
balance sheet. If accounting rules were to change in the future whereby a non-consolidated special purpose entity may require consolidation, the
result would be to add $100 million of PP&E and debt obligations to
Lucent’s balance sheet. It is unlikely that this would affect the
company’s cash position, unless Lucent were to unwind the synthetic lease.
Lucent does not have any restricted cash associated with its synthetic
lease.
* Special Purpose Trust. Lucent’s non-consolidated Special Purpose Trust
holds about $350 million of customer finance loans and receivables. The
loans were sold on a limited recourse basis; however, given Lucent’s credit
rating the company has not been able to sell additional vendor finance
receivables to the trust since February of 2001. Given the negative credit
ratings outlook on Lucent by S&P, Moody’s and Fitch, we believe it is
unlikely that Lucent will be able to use the Trust to sell receivables in
the near future.
* Accounts Receivable Securitization. Lucent also has a more traditional A/R
securitization facility. At the end of the June quarter, $20 million was
outstanding under its $500 million facility, which is due in June 2004.
The small amount was somewhat surprising given the Lucent’s AR balance of
$2,245 million. We believe the use of the securitization program will
likely remain low unless the company runs into a cash crunch.
C. Here is a link to try http://www.3gtoday.com/ . You can read about 3G and its hopeful future.
D. Interesting article I found today, which discusses 3G in a different manner than the above link.
>>
——————————————————————————–
General News
Thursday, August 15, 2002
Next-Gen Wireless Put On Hold As Costs, Debt Hamstring Telcos
BY SARAH Z. SLEEPER
INVESTOR’S BUSINESS DAILY
What do Japan, Monaco, the Isle of Man, South Korea and Sioux Falls, S.D., have in common?
They are among the few places in the world where third-generation, or 3G, wireless service exists. Once hyped as the cool, new way to send photos and check movie listings with cell phones, 3G is a reality only in tiny spots.
For the few who do have it, 3G is fast enough to send e-mail via a wireless phone, for example, but may not be fast enough to move big files with ease.
Analysts admit that like the dot-com boom and bust, the telecom boom is a bust too, dragged down in part by unfulfilled 3G promises.
Carriers made exorbitant 3G investments, which haven’t brought in any revenue in most cases. It’s not that 3G will never happen, say analysts. It’s just not going to happen soon.
Both European and U.S. wireless carriers are fettered by huge debt. Revenue is hampered by lackluster consumer interest in new data services and gizmos.
Put On Hold
Many carriers, such as the world’s largest Vodafone (VOD) and the U.S.’ largest Verizon (VZ), are upgrading wireless networks, but some analysts say it could be 10 years or more until 3G is widespread.
“Well into the next decade,” said Andrew Seybold, a wireless consultant. Even then, he expects only 30% of cell phone users to ever buy 3G data services.
Combine that uncertainty with carriers’ financial ills, and the result is an uncertain future for 3G.
Cases in point:
• Spain’s Telefonica (TEF) took a $4.9 billion second-quarter loss after ditching its 3G rollout in Germany. It plans to postpone 3G in Austria and Switzerland too.
• Finnish carrier Sonera (SNRA) surrendered its 3G spectrum license in Norway last August.
• British carrier Orange on Aug. 6 asked to put off its 3G deadline in Sweden from 2003 to 2006.
• Vodafone subsidiary Japan Telecom has delayed indefinitely its 3G launch in Japan.
“We’re going to continue seeing some write-downs on the part of operators saying, ‘We’re not going into the 3G market,’ ” said Sam May, an analyst with US Bancorp Piper Jaffray.
The Fallout
Carriers’ decisions ripple down to network gear and handset makers, says Ronnie Dallal, a vice president at Probe Research. For example, Orange’s delays hurt Alcatel (ALAO). And whenever European carriers delay upgrades, Nokia (NOK) and Sony Ericsson suffer.
To spark 3G interest, Ericsson this month sent 15 applications to carriers to try for free. They include mobile videoconferencing, multimedia messaging and games.
Still, Lehman Bros. expects wireless gear makers around the world to see a 20% revenue drop this year and 10% in 2003. Piper Jaffray cut its handset sales forecast for 2002 from 410 million units to 395 million – below last year.
Europe is not the only place where 3G looks sketchy. Japan’s NTT DoCoMo, often held up as a wireless data success story, cut its 3G subscription fees by 40% in an effort to boost use. It expected to have 150,000 users by March, but scored only 115,000 by June.
Even Korea, with millions of 3G subscribers, has naysayers. “Korea launched 3G because of the World Cup,” said Dallal. In an effort to host the games with panache, Korean carriers offered game clips, scores, trivia and other Cup-related 3G services.
Some say the fate of 3G was sealed years ago, when Europe’s carriers spent some $100 billion just on spectrum licenses.
“The European governments were great con artists,” said Seybold. Not only did the carriers pay loads for spectrum they may never use, but also they must build 3G networks on new spectrum rather than enhance existing capacity.
“That will require the carriers to build out three times the number of cell towers they have today,” he said. The cost will doom some, says Seybold. Fourth- and fifth-place carriers in each market may exit or seek mergers, he says.
Plus, technical difficulties with Europe’s flavor of 3G will need to be fixed. The same weekend that Telefonica announced its 3G drop, Hong Kong’s Hutchison, an aggressive, multinational 3G carrier, said dropped calls will be a problem during a transition between 2G and 3G.
In the U.S., things look a little better. No carriers have canceled 3G. And the cost to U.S. carriers of 3G spectrum will be just $16 billion, says Seybold. Most carriers also will be able to use existing spectrum in combination with 3G.
Still, about 86,000 U.S. base stations will need upgrades at a cost of $500,000 to $1 million each.
Sprint PCS (PCS), the U.S.’ No. 4 wireless carrier, says it launched a nationwide 3G network on Aug. 8. Analysts give Sprint kudos for its rollout, but they also point out that it may not actually be 3G.
The International Telecommunication Union says networks must shoot data at 144 kilobits per second (2.5 times normal modem speed) to be called 3G. Sprint will attain that speed, says spokesman Dan Wilinsky, but the average will be 50 to 70 kbps.
Still, Wilinksy says 3G has better prospects here than abroad. “The overseas equation is totally different,” he said. “In the U.S., there’s reason for hope.”
For one thing, Sprint uses code division multiple access, or CDMA, technology, different than Europe’s Global System for Mobile Communications. Seybold says CDMA is cheaper to upgrade and more efficient.
Sprint’s 3G upgrades for 2001 and 2002 cost $800 million, says Wilinsky, plus $3.4 billion for spectrum. The carrier expects to see returns as early as this year, he says.
The average U.S. monthly cellular bill is $49. Seybold says data services could up that by 10% to 20%.
There are other rays of 3G hope. Vodafone put out a statement Aug. 6 saying it would offer 3G services by early 2003. Sonera plans 3G in Finland next month.
Verizon offers 3G in limited U.S. areas, as do start-ups such as Monet.
May expects to see wide deployment by 2005. He says carriers that stay the 3G course could start making returns on their investments within three to eight years
<<
E. Things I am looking for answers for right now
1. where does Lucent fit into the broadband cable group. We see that they recently mentioned Comcast as a customer, but they were vague on the type of deployment (if my memory serves me correctly)
2. what is going on with the Stinger product . Westlake, CA operations were closed and 100 were laid off. The remaining Stinger product will will work out of NJ. What effect will that have on current and future customers. Sprint announced today that they expanding its DSL footprint and product set. Interestingly enough, I am under the impression that Sprint recently announced it would be decommisioning DSL equipment in 32 markets and would “deliver service via an alternative platform”. The alternate platform is Covad.
All in all , I am currently thinking that the Sprint activation of 94 markets could be either Lucent neutral or positive. Perhaps Covad could embrace Lucent. I am not very familiar with that part of the market to be relied upon for any technological discussion. I have been under the impression that the DSL market is slowing down. Until I hear differently, that is the stance I am currently assuming.
August 4, 2002
Moody S&P Qty Min Issue Coupon Maturity Yield LY Price
B2 B+ 1000 20 Lucent Tec 7.250 07-15-2006 20.578 20.578 65.188
B2 B+ 100 Lucent Tec 7.250 07-15-2006 21.603 21.603 63.188
B2 B+ 100 Lucent Tec 7.250 07-15-2006 20.080 20.080 66.188
B2 B+ 100 Lucent Tec 5.500 11-15-2008 17.942 17.942 54.250
B2 B+ 95 Lucent Tec 7.700 05-19-2010C 16.902 16.902 60.313
B2 B+ 67 Lucent Tec 7.700 05-19-2010C 15.664 15.664 64.313
B2 B+ 28 Lucent Tec 8.000 05-18-2015C 15.588 15.588 58.438
B2 B+ 105 Lucent Tec 8.000 05-18-2015C 14.549 14.549 62.438
B2 B+ 100 Lucent Tec 6.450 03-15-2029 13.468 13.468 49.500
February 26 ,2002
December 3, 2001
November 26, 2001
Lucent was downgraded today by Ambro (LU) downgrading from add to hold revising FY02 est from ($0.39) to ($0.53); FY03 est from $0.18 to breakeven; we are less confident Lucent will achieve positive sequential revenue growth in 2Q02 (March) which is guidance ) and MS. MS downgrade was based on valuation. Price target of 8.00 (right where we are basically) and said they would be aggressive buyers at below 6. Projection F2002 revenues at 15,867 whereas consensus estimates are at 18,619. Report indicated that most investors do not fully appreciate the complexity of selling equipment into incumbent networks, as interoperability (i.e. OSMINE) and integration requirements are far more intricate than similar need at emerging carriers. MS feels that Lucent’s substantial experience with these issues represents a formidable point of differentiation against vendors with limited incumbent carrier experience such as Cisco and CIENA. Report mentioned that Lucent filled gaps in its optical networking portfolio with introductions of edge grooming switches (the LambdaUnite and LambdaManager) , a Metro DWDM system (EON) and an integrated UltraLongHaul (ULH) system with the LambdaExtreme.
JPMorgan on Lucent 11/26/01
>>11/7/01 Lucent
Technologies
Introduced several new products,
including LambdaUnite (optical grooming
switch), LambdaExtreme (ultra longhaul/
long-haul DWDM), TMX 880
(IP/MPLS multi-service switch), Metro
DMX (NG SONET), Metro EON (metro
core DWDM).
Several of these new products sound attractive on paper, and could present
significant opportunities for Lucent if product introduction is executed
well. Notably, LambdaUnite is currently in trials with three customers, and
is slated for general availability in January 2002. These products do pit
Lucent up against some formidable competing products, such as CIENA’s
CoreDirector (for LambdaUnite), Corvis, and Nortel’s (for
LambdaExtreme), and Cisco’s ONS 15454 (Cerent), CIENA’s K2 (Cyras),
Redback’s SmartEdge, and Fujitsu’s Next-Generation SONET (for Metro
DMX).<<