Cautious Optimism From Cisco and Lucent
Offering a glimmer of good news after months of earnings woes, telecommunications equipment bellwethers Cisco Systems Inc. and Lucent Technologies Inc. told analysts Thursday that their recoveries remain on track as they continue to restructure.
The news drew a mixed reaction from investors. Lucent’s shares closed at $6.65, down 3 cents, on the New York Stock Exchange. Cisco’s shares closed at $16.76, up 28 cents, on Nasdaq, then climbed as high as $17.63 in after-hours trading.
The doldrums in the telecommunications equipment sector have helped drag down the entire stock market, with former highfliers Cisco and Lucent falling particularly far and fast. Cisco Chief Executive John Chambers didn’t predict any improvement in the company’s sales, yet his comment that “we are beginning to see signs that our business is stabilizing” cheered analysts.
“The market’s thirsting for something positive to hang their hat on, and I think it’s a good sign that Cisco is beginning to see stabilization,” said Christopher McHugh, senior portfolio manager at Turner Investment Partners. McHugh’s company owned 8.59 million Cisco shares as of June 30.
San Jose-based Cisco, the leading outfitter of the Internet, has the largest market capitalization among communications equipment companies. Murray Hill, N.J.-based Lucent is the largest U.S. manufacturer of telephone equipment.
Cisco told analysts that results for the current quarter, which began July 1, have been in line with earlier projections. The company previously said it expects sales in the quarter to be no higher, and possibly 5% lower, than they were in the previous quarter.
Chambers also announced the company’s largest management shake-up since 1997, replacing Cisco’s three customer-oriented lines of business with 11 groups focused on different technologies. These include optical, storage and Internet switching.
The changes were made “to grow our business, not to reduce head count,” said Chambers, who has already cut 8,500 jobs this year. “What we do if we execute right is increase profit contribution” from individual product areas, he said.
Chambers named Mario Mazzola, an eight-year Cisco veteran, to the new position of chief development officer, overseeing the 11 groups. The largest group--Internet switching and services--will be led by former Chief Strategy Officer Michelangelo Volpi, and four other groups will be led by Charlie Giancarlo, former head of Cisco’s commercial line of business.
James Richardson, who led Cisco’s enterprise line of business, will become chief marketing officer. Kevin Kennedy, who ran Cisco’s service-provider business, will leave the company but continue to act as an industry and technical advisor, Chambers said.
Lucent told analysts that it has raised enough money to complete a massive restructuring, which it said should lead to profitability by the end of September 2002. The company laid off 2,200 workers Thursday as part of its plan to halve its worldwide work force, which in January totaled about 123,000.
The leaner company will narrow its focus to concentrate on its top 30 customers, which represent 75% of its sales, executives said. They also predicted the company would lose less money in the current quarter than in the previous one, when it reported a loss of $1.2 billion.
Lucent said it will have $6.25 billion in cash, including proceeds from the sale of its optical-fiber business. That will be more than enough to cover its near-term spending needs of $3.2 billion to $3.5 billion, executives said.
Some investors and analysts were encouraged by the company’s comments. “They’re doing a good job on the cost side and putting resources where they should,” said analyst Ken Leon of ABN Amro, which upgraded the stock from “hold” to “buy.”
Others were less sanguine. “There’s still a lot of skepticism about the execution issues . . . . That’s the real sticking point,” said Deutsche Banc Alex. Brown analyst George Notter.
Associated Press, Bloomberg News and Reuters were used in compiling this report.
