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Analysts Say Lucent Plans 10,000 Job Cuts, $1 Billion Restructuring Charge

(1/23/01 4:03:42 PM PT)

By Shawn Young, Staff Reporter of The Wall Street Journal

NEW YORK -- Lucent Technologies Inc. is planning a restructuring charge of more than $1 billion and 10,000 job cuts, according to Wall Street analysts who follow the company.

The company is expected to announce the moves Wednesday, when it releases earnings for the fiscal first quarter ended Dec. 31, the analysts say.

Most analysts said they are expecting the charge, which could include write-offs for inventory, discontinued products, real-estate, plant closings and defaults on debts by customers, to be between $1 billion and $2 billion. Such a charge, which Lucent (LU) would take in the current second quarter, could approach or exceed the giant telecommunications equipment-makers' net income from continuing operations for fiscal 1999, which was $1.68 billion, including one-time items. A Lucent spokeswoman declined to comment on the analysts' forecasts.

'I certainly wouldn't be surprised to see a charge of $1 billion or more,' said ING Barings analyst Tom Luria. 'The restructuring will be big and complex with a charge to match.'

The Murray Hill, N.J., company is trying to recover from a disastrous year in which it fired its chairman and chief executive after a string of earnings disappointments that has sent its stock down more than 80%. In October Lucent reinstated former Chairman and Chief Executive Henry Schacht, who says Lucent erred by pushing for faster growth than it could sustain at the same time it was beginning to feel the effects of its failure to anticipate demand for ultra-fast optical-networking gear. Now Lucent must also contend with a projected slowdown in spending by telecommunications companies.

The company is now struggling to contain costs that got out of control as internal forecasting systems faltered under the strain of meeting overly ambitious short-term targets. The job cuts that will be a major part of Lucent's plan to cut costs by $1 billion this year will come from a mixture of layoffs and attrition, with layoffs accounting for the majority, say people familiar with the matter. The cuts should total almost 10% of Lucent's work force of 106,500, excluding the 16,500 employees of the Agere microelectronics unit the company plans to spin off this year.

Athough the company has said more charges are possible later in the year, this restructuring announcement is a big opportunity for Lucent to clean house. 'If I were them, I'd write off everything that wasn't tied down,' said Sanford C. Bernstein analyst Paul Sagawa. 'They get a freebie here and I think they'll take it.'

Investors poring over the company's results and projections will be looking for 'evidence that they're taking positive steps,' said Mr. Sagawa. Such evidence would include progress in optical networking, including possibly the addition of WorldCom Inc. (WCOM) as an optical customer; focus on finding a permanent replacement for Mr. Schacht, who is serving temporarily; and sound restructuring plans governed by an improved sense of strategic direction, analysts said. Potential investors will also be looking carefully at Agere's results for reassurance that the spinoff will be a success. Mr. Luria said he is expecting the unit to post revenue growth of 59%, as it did in the fourth quarter.

Most analysts are hoping to hear Lucent's projections for the remainder of the year, but some say it's possible the company won't elaborate on its existing forecast that it will show consistent quarter-over-quarter improvement for the rest of the year, with growth catching up to industry levels next year.

Failure to provide more detailed guidance would not be good, said Lehman Brothers Inc. analyst Steven Levy. 'It would certainly be viewed negatively.'

The company should at least be able to provide projections for the current second fiscal quarter, said UBS Warburg analyst Nikos Theodosopolous. The current First Call/Thomson Financial consensus estimate, which doesn't include any charges, is that the company will lose 9 cents a diluted share in the second quarter and 22 cents in fiscal 2001.

The First Call estimate for the first quarter is a loss of 27 cents, in line with the company's announcement in December that it would post a loss of 25 cents to 30 cents a diluted share on revenue of about $6.3 billion.

Lucent's stock fell 19 cents to $18.88 in 4 p.m. EST New York Stock exchange composite trading. Analysts said institutional investors have drastically curtailed their holdings in Lucent, but some will be looking for encouraging signs that it is time to buy the stock again at depressed prices.

'I do think it's a stock that people are looking for a reason to buy,' said Mr. Theodosopolous, 'but the reasons have to be real.'

Copyright (c) 2001 Dow Jones & Company, Inc.

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-- Martin Thompson (mthom1927@aol.com), January 23, 2001

Answers

Good one, Martin!:

"...The company is now struggling to contain costs that got out of control as internal forecasting systems faltered under the strain of meeting overly ambitious short-term targets..."

Cory Hamasaki's hypothesis: back-room Y2K problems!?

Where's that yellow-triangle-Y2K-bug graphic?

-- Andre Weltman (aweltman@state.pa.us), January 24, 2001.

Lucent Telecommunications Equipment Cases:

Beatie, King & Abate, LLP v. Lucent Technologies
Supreme Court of New York, County of New York
No. 99600192

Modern Drummer Publications, Inc. v. Lucent Technologies
Superior Court of New Jersey, Law Division, Middlesex County
Filed January 29, 1999

Community Health Association, et al. v. Lucent Technologies
Circuit Court, Kanawha County, West Virginia

Medimatch v. Lucent Technologies
United States District Court, Northern District of California
Filed June 30, 1999
99-CV-3198

Counsel:

Beatie Plaintiffs:  Russell Beatie of Beatie and Osborn LLP, New York, NY

Modern Drummer Plaintiffs:  Russell Beatie, Beatie and Osborn LLP; Ward S. Taggart, Meredith, Meredith & Chase, Trenton, NJ

Community Health Plaintiffs:  James C. Peterson, R. Edison Hill, Harry G. Deitzler,  Hill, Peterson, Carper, Bee & Deitzler, P.L.L.C., Charleston, WV
Defendant: James B. Tyrrell, Jr., Latham & Watkins, New York, NY

Medimatch Plaintiffs: Leiff, Cabraser, Heimann and Bernstein, LLP
Defendant: Latham & Watkins, San Francisco, CA

Summary of Claim: Class actions against Lucent alleging that various telecommunications products are not Y2K compliant and that plaintiffs have been or will in the future be forced to purchase upgrades or alternative products.

Causes of Action: Unfair trade practices, breach of express and implied warranties of merchantability, breach of contract.  The Community Health Complaint adds a count sounding in strict liability for product defects.

Status: Pending; however, a motion to dismiss has been filed in the Beatie action asserting that the plaintiffs have not suffered any actionable injury

The Federation

-- spider (spider0@usa.net), January 24, 2001.