Lucent Chief Could Face Ouster if Slide Continues

Lucent Technologies Inc. Chief Executive Rich McGinn is under pressure from investors to reverse a profit slide at the biggest maker of phone equipment, or give up the company’s helm.

“He’s got a short rope,” said Managing Director John Waterman of Rittenhouse Financial Services Inc., which held 7.64 million shares of Lucent on June 30. “The pressure’s only going to grow.”

In its third disappointment this year, Lucent late Tuesday said its earnings will be down in its fourth quarter that ended Sept. 30. That misses a target it reduced 13 weeks ago. With its stock down 70% this year, Lucent has lost $151.3 billion in market value.

McGinn, 54, told Lucent’s top 400 executives on a conference call earlier Wednesday that he has no plans to resign, spokesman Bill Price said. As recently as six weeks ago--after reducing profit forecasts for the second time a month earlier--the chief executive said he had full support of the company’s board.

Ken Turek, a portfolio manager at Northern Trust Corp., said he won’t buy Lucent stock as long as McGinn is CEO. Although he sold Lucent earlier this year from the funds he manages, Northern still held 21.2 million shares as of June 30.

Waterman said he’s “inclined” to wait for Lucent to spin off Microelectronics, its semiconductor and fiber-optic components unit, before selling his shares. The company plans to sell a fifth of that business in an initial public offering by March 30 and will distribute the remainder to shareholders later in the year.

“We could change our mind,” Waterman said.

Lucent shares plunged $10.13, or 32%, to close at $21.25 in New York Stock Exchange trading. It went public at $6.38 in April 1996, adjusted for splits. AT&T; Corp. spun off the company in September of that year.

McGinn, who started his career at Illinois Bell in 1969 and rose through AT&T; to become executive vice president, was named Lucent chief executive in October 1997 and chairman in January 1998, replacing Henry Schacht in both jobs.

In his first year as chief executive, sales rose 13%. They jumped 21% the next and 20% in fiscal 1999, a year in which net income rose to a record $3.83 billion from $2.62 billion.

McGinn was paid $28.7 million in cash and stock options in fiscal 1999, according to a Bloomberg pay survey in June.

McGinn has been promising a turnaround since the first warning in January, which came after the company beat profit expectations for 15 straight quarters. He’s racing to reshape Lucent with management changes and spinoffs by next summer.

“If I were the board, I’d fire him,” said Turek of Northern Trust.

Some investors are willing to give McGinn more time.

“It does take awhile to turn a company this big around,” said Richard Goldman, who manages Citifund’s Large-Cap Growth Fund, which holds 150,000 shares of Lucent.