Lucent Fires CEO, Issues Gloomy Sales Prediction
The board of Lucent Technologies Inc., under severe pressure because of Lucent’s faltering performance and a breathtaking drop in its stock price, fired Chairman and Chief Executive Richard McGinn on Monday and predicted poor financial results for yet another quarter.
The ouster of McGinn surprised few people because the dismal showing at Lucent--the world’s largest producer of telecommunications equipment and a onetime darling on Wall Street--seemed to grow worse by the week. Management missteps caught much of the blame and, as Lucent’s condition worsened, McGinn’s credibility eroded.
At a meeting this weekend, Lucent’s directors decided “that an immediate change in leadership was necessary,” the company said, and some analysts asked aloud what took them so long.
But the stock didn’t get a boost from McGinn’s departure, mainly because Lucent once again forecast tough times ahead that Wall Street hadn’t expected. The stock slipped 56 cents a share Monday to close at $22.06 in heavy trading on the New York Stock Exchange.
McGinn, 54, was replaced by Henry Schacht, 66, who was Lucent’s chairman and chief executive from 1995 to 1997 and led the company’s spinoff from AT&T; Corp. in 1995 to an independent company. Schacht promptly initiated a search for his successor at Murray Hill, N.J.-based Lucent, which is home to the renowned Bell Laboratories.
“The company’s issues are ones of execution and focus, and they are fixable,” Schacht said in a conference call with analysts. “We’re looking forward, not back. This company is in the process of being re-energized.”
But whoever the successor is, they “face a big challenge,” said Steven Levy, an analyst at Lehman Bros. in New York. They must “stem the tide of employee departures” from Lucent, along with mollifying Lucent’s enormous base of customers who are concerned about the company’s prospects, he said.
The new CEO also must quickly raise Lucent’s batting average in the burgeoning market for optical-based networks that serve both telecommunications providers and firms moving Internet traffic. It’s a sector where Lucent has struggled against the likes of Nortel Networks Corp. and other rivals as it migrates to that field from its mature business of building conventional, complex switches for telephone signals.
McGinn, who until last week had disputed publicly that his job was in danger, had no comment in the company’s statement and couldn’t be reached for an interview.
Lucent’s fall from grace is most starkly evident in the price of its stock, one of the most widely held in corporate America. The stock has plunged 69% so far this year, wiping out an astonishing $171.4 billion of investors’ wealth.
Lucent’s problems are far from over. Lucent warned that in its fiscal first quarter ending Dec. 31, the company expects revenue from continuing operations to fall 7% (excluding one-time charges), and for its earnings per share to be only break-even. Many analysts had looked for revenue to climb 10% or more in the quarter and for Lucent to earn 20 cents per diluted share.
Lucent also said it would provide “revised guidance” about the rest of its fiscal year in January, which could include even more bad news stemming from additional sales shortfalls and restructuring steps.
That overhaul will “certainly” include job cuts, Deborah Hopkins, Lucent’s chief financial officer, said during the analysts’ conference call, but she declined to specify the number. Lucent employed about 109,000 people as of Sept. 30, excluding about 16,000 who work for Lucent’s microelectronics unit, which is being spun off into a separate company.
Tom Lauria, an analyst with the investment firm ING Barings in New York, said he was surprised by the extent of Lucent’s expected first-quarter shortfall. “How do you have zero profit on $8 billion in revenues?” Lauria asked. At this rate, he said, the company “will have two years of negative earnings-per-share growth in an industry that’s been growing 20%.”
And after the markets closed Monday, Lucent reported results for its fiscal fourth quarter ended Sept. 30 that the company already had said would fall far short of expectations.
In its fourth quarter, Lucent’s earnings from continuing lines, and excluding one-time costs, fell to $600 million, or 18 cents per diluted share, from $768 million, or 24 cents, a year earlier. Fourth-quarter revenue rose 15% to $9.4 billion from $8.2 billion.
Lucent’s problems began about two years ago, as sales growth for its older, conventional switches--which are extremely profitable for Lucent--began to slow. At the same time, demand for new optical networks began surging.
But Lucent made at least one tactical mistake by focusing its initial optical gear on products that could carry more data, while Nortel developed fiber-optic technology that could move Internet traffic and other data at vastly faster speeds. That’s what customers wanted, and sales of the Nortel product soared. Lucent has been playing catch-up ever since.
That contributed to several quarters of lousy financial results at Lucent, and it also called into question whether the giant company’s management was facile enough to keep pace with the rapidly changing market for telecom equipment.
“The repeated disappointments of Lucent have called for a change at the CEO level for some time,” said Eric Buck, an analyst at Wasserstein Perella Securities in New York.
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Times wire services were used in compiling this report.
