October 23, 2002
Conference Call Notes and Observations
Lucent Technologies, Inc.
12 Months ended September 30, 2002
please see Disclaimer at bottom of report
This report was last amended on October 23, 2002.
Lucent Technologies, Inc. designs and delivers networks for the world’s largest communications service
providers. Backed by Bell Labs research and development, Lucent, claims to rely on their
strengths in mobility, optical, data and voice networking technologies, as well
as software and services, to develop next-generation networks. Lucent, claims that their systems,
services and software are designed to help customers quickly deploy and better
manage their networks and create new, revenue-generating services that help
businesses and consumers.
Notes From Conference Call
Pat Russo – Chief Executive Officer:
1. Top priority is returning to profitability towards end of F2003.
2. Assuming a 20 % decline in revenues from F2002 to F2003. This was used in developing guidance for the cash balance expectations of $2.0 billion at end of F2003
3. Claims sufficient liquidity going forward
Frank D’Amelio – Chief Financial Officer
1. Revenues continue to fall as capital expenditures by Service Providers are continuing to fall.
2. Significant customer default was $250m (this still has not been made public, but we are convinced it is Leap Wireless).
3. Pension Plans have an under funded balance of 2.8 billion .
4. Lucent’s Convertible securities were purchased on the open market. Lucent wanted to take advantage of the “low prices” of these securities. Lucent bought back about 178 million for 58 million shares of common stock.
5. Vendor financing being viewed as a “scarce resource”
6. Breakeven expected at late F2003.
7. Gross margin expected of 35 % in late F2003.
8. Cash requirements for F2003 is about 2.3 billion. This includes about $1 billion of operational expenses. Expects to have more than $2.0 billion in cash by end of F2003, without including any new credit facilities.
9. ” detailed plans of return of profitability by end of F2003″
10. Expects revenues of Q1’03 to be flat to down 10 %. Expects revenues of $2.5 billion in Q2’03
Pat Russo – Chief Executive Officer:
1. Optical Networking Portfolio will be maintained. Lucent will focus on metro and edge products. Several contracts have not yet been announced. LambdaXtreme being trialed by 6 customers.
2. Service Providers will evolve from 5e platforms to IP based centrex services.
3. A new high capacity switch is being tested.
4. Softswitch plans – customers are not going to substitute class 4 and 5 switches in the near term. Instead, Lucent will focus softswitch to mobility solutions. MPLS features will be expanded.
5. Stinger products will not be focused on.
6. Network management software will be focused. Lucent has over 900 customers, including both Service Providers and Enterprise customers.
7. Lucent is gaining market share in CDMA technology.
8. I think that Lucent is hinting that wireless will be focusing on Enterprise Customers as well as Service Providers (the previous focus).
9. Services are integral to the strategy shift. Evolving the foundation of services will take time. Russo, claims this is a $44 billion market.
Question and Answers
1. Question as to gross margin differentials between INS and Mobility. Short answer is that Mobility gross margins are higher than INS gross margins.
2. Mobility should be the catalyst towards Q2’03 increases. Frank hinted that this will be from North American revenues.
3. UMTS revenue will be non existent for F2003. Lucent is in trials with Telefonica, yet revenues are not expected in F2003. Lucent stated that the lack of revenues has not stopped their focus on UMTS.
4. Services work force is volume related. Lucent is adjusting work force as necessary to match up with the volumes. Lucent is looking at Services opportunities. As that builds, it is possible for increased head count in that area.
5. Services revenue in June were $ 630 million, in September quarter they were $ 560 million.
Some “ back of the envelope” financial observations
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