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Lucent sees big 1Q loss
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December 21, 2000: 4:38 p.m. ET
Company seeks to cut $1B in costs; also reports revised 4Q, 2000 results
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NEW YORK (CNNfn) - Following its troubling pattern for the year, Lucent Technologies warned Thursday first-quarter earnings would be much lower than expected and announced a wide-scale restructuring plan which will result in job cuts.
Lucent Chairman and CEO Henry Schacht said in a conference call while the company is basically sound, it has "serious focus and execution problems" which will take all of fiscal 2001 to sort out.
Lucent said it expects a first-quarter loss of 25-to-30 cents a share from continuing operations, much worse than Wall Street's forecasts for a loss of 1 cent a share.
 Schacht blamed first-quarter troubles on a significant sales decline due to softening in the competitive local exchange carrier (CLEC) market, slowdown in capital spending by established service providers, lower software sales, and a more focused use of vendor financing.
The company's stock rebounded off its session lows to close Thursday down $1.31 at a 52-week low of $14.19. The stock has lost about 80 percent of its value this year, hitting investors with a string of earnings disappointments.
"Lucent got off track because we tried to grow our company faster than, in hindsight, we were able to," Schacht said.
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 WHERE HAVE ALL THE PROFITS GONE?
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At the beginning of July 2000, analysts expected Lucent to earn 41 cents per share in first quarter 2001. The company now expects a loss of 25 to 30 cents.
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He said too much focus on short-term revenue rather than long-term value creation hurt the company, and agreed with recent analyst comments that the company arrived late in the optical networking game.
Lucent's trouble is also affecting the company's debt rating. Standard & Poor's said Thursday it is lowering the company's short-term and senior ratings and keeping Lucent on watch with negative implications, meaning Lucent will find it more expensive to borrow money.
S&P said in a release the "downgrade reflects inconsistent operating performance in fiscal 2000, ended Sept. 30, significant anticipated losses in the fiscal first quarter of 2001, as well as reduced profitability for 2001."
Restructuring plan to cut $1B
The company, whose stock is one of the most widely held in the United States, said it would seek to cut $1 billion in costs with a restructuring plan focusing on high-growth areas.
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LUCENT'S TALE OF WOE
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July 20 - LU warns on 4Q 2000 and 1Q 2001
Oct. 10 - LU warns again on 4Q 2000
Oct. 23 - LU ousts CEO, beats lowered 4Q estimates
Nov. 21 - LU says it must restate 4Q 2000
Dec. 21 - LU warns again on 1Q 2001, restates 4Q 2000
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Lucent intends to realign its sales and marketing departments to eliminate duplication and will focus on the service provider market.
Schacht said the company did not yet know how many jobs would be cut. The company employs about 153,000 people.
More details of the plan or any charge Lucent will incur will be released when the company reports official first-quarter results in late January.
"It will take the rest of fiscal 2001 to get back on track," Schacht said. "In the second half of the year the significantly reduced expense levels will take hold."
Lucent expects sequential growth in every quarter of 2001 and to grow at or beyond market rates by the end of 2002, but another big cost reduction could be in the cards.
"The main issues are employee retention (with the company in trouble)," said Seth Spalding, an analyst who follows Lucent for Epoch Partners. "That's the wild card in terms of their being able to pull this turnaround off."
Restating revenue
According to Lucent, the assumption that the company was working from a larger revenue base has hurt the first quarter.
The Murray Hill, N.J.-based company announced Nov. 21 it had identified a "revenue recognition issue" impacting approximately $125 million of revenue in its fourth quarter ended Sept. 30.
On Oct. 23 the company originally reported fourth-quarter revenue of $9.4 billion and pro forma earnings of 18 cents per share, beating lowered analysts' expectations by a penny.
But as a result of the review, Lucent (LU: Research, Estimates) has revised its fourth-quarter revenue down to $8.7 billion and its pro forma earnings to 10 cents a share, a much greater cut in earnings per share than the 2 cents the company estimated last month.
Schacht said the revenue problems were due to misleading documentation and lack of communication in connection with customer credits. One employee was fired as a result, he said.
For fiscal 2000, the revised revenue figure is $33.6 billion, with a revised earnings figure of 93 cents per share. 
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Lucent
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