Lucent Posts Big Loss, Will Cut More Jobs
Ailing communications equipment maker Lucent Technologies Inc. on Tuesday posted a stunning $3.25-billion third-quarter loss and said it expects to cut up to 20,000 more jobs from its payroll.
The Murray Hill, N.J., company, pressing for its operations to become profitable next year, also said it will eliminate its quarterly dividend, saving $272 million a year, and postpone by up to six months the planned spinoff of its semiconductor and optical components division.
The deluge of bad news prompted a further decline in Lucent’s already battered stock price and triggered a warning from the Standard & Poor’s Inc. debt-rating service that it may lower Lucent’s junk-status rating.
Lucent shares fell $1.47, or 18%, to close at $6.43 on the New York Stock Exchange. In the last year, the company’s stock price has lost more than 80% of its value, erasing more than $140 billion in market value.
“Lucent is obviously in worse shape than we thought,” said Pat Comack, a telecommunications analyst at Guzman & Co. “And while we might be at the bottom, we might stay at the bottom for quite a while.”
Lucent, Nortel Networks Corp. and other telecommunications suppliers are suffering through an abrupt about-face in spending by phone companies, which had been ordering record amounts of switches and other hardware to keep up with spiraling Internet traffic.
When the economy turned south, many smaller phone companies went bankrupt and orders dried up at the remaining carriers. The situation has hit Lucent particularly hard because the company extended billions of dollars in equipment loans to companies that ultimately failed.
For the fiscal third quarter ended June 30, Lucent’s sales fell more than 21% to $5.8 billion, an amount that was nearly flat compared with the second quarter.
On an operating basis, Lucent lost $1.9 billion, or 55 cents a share. The third-quarter results included $684 million in restructuring and one-time charges. A year ago, Lucent posted a profit of $286 million, or 9 cents a share.
Company executives, while expressing disappointment with the results, characterized the flat quarter-to-quarter sales figure as a sign that Lucent held its own despite the worsening order environment.
“We are taking a multitude of actions to turn around the business, and we’re accelerating our progress,” said Lucent Chairman Henry Schacht.
Among those moves is the long-awaited sale of its fiber-optic unit to Japan’s Furukawa Electric Co. and Corning Inc., yielding $2.75 billion in much-needed cash when the deal closes in September.
In addition, Lucent announced Tuesday that it struck a deal to sell its plants and assets in Oklahoma City and Columbus, Ohio, to contract manufacturer Celestica Inc. for up to $650 million. Lucent said it will consider similar deals for other facilities as part of the restructuring plan the company launched in January.
So far this year, Lucent has cut its work force by about 36,000 employees, including 19,000 in layoffs and early retirements, and 17,000 workers who have become employees of Agere Systems Inc., its former semiconductor and optical components division.
Adding in the next wave of layoffs and the transfer of employees in plant and operations sales, Lucent’s reorganization cast off nearly half of its work force since the beginning of the year--leaving it with about 57,000 workers. In its fiscal fourth quarter, the company will take another $7 billion to $9 billion in charges to pay for the restructuring.
“If Lucent can’t raise revenue, they have to cut costs. . . . That’s why we are seeing wave after wave of job cuts,” said Jeff Kagan, a telecommunications analyst. “When the dust settles, Lucent will be a shadow of its former self until the turnaround in the marketplace lets them start building again.”
That turnaround could be a long way away, analysts say. And in the meantime, Lucent must continue cutting costs and raising money to offset its sharply lowered sales.
Lucent said its planned layoffs and other cost-cutting moves will produce a $7-billion to $9-billion write-off in the fourth quarter, which follows charges totaling about $3.5 billion in the first three quarters. The upcoming charge exceeds limits set by Lucent’s bankers under two critical credit lines.
Company executives said they will seek “flexibility” from the banks to allow them to proceed with the restructuring as planned. Under earlier agreements, Lucent pledged its remaining Agere shares as collateral on the lines of credit.
To release those shares, Lucent must raise about $2 billion in nonoperating cash. On Tuesday, Lucent said it will likely delay the planned spinoff of Agere, and may decide to sell its 58% stake ina secondary offering instead of distributing the shares to stockholders.
“That is bad news for Agere, because the sooner Agere can divorce itself from Lucent the better it is for its shareholders,” said Comack, the Guzman analyst. “The fact that they were disassociating themselves from Lucent was a major positive for their business.”
Shares of Agere fell 90 cents, or 13%, to close at $6.10 on the NYSE.
Excluding one-time charges, Lucent said its results for continuing operations included a loss of $1.2 billion, or 35 cents a share, contrasted with a profit of $286 million, or 9 cents a share.
Analysts had expected a loss in the range of 9 cents to 39 cents per share.
Michael Ching, an industry analyst at Merrill Lynch, said he was happy to see the fiber-optic unit’s sale, and generally applauded Lucent’s moves to raise cash and cut costs. But he remains cautious about the company’s future.
“The curve ball that we were thrown today was the size of the restructuring charge, and the cash element of that restructuring charge [for the fourth quarter], and also the termination of the dividend, and the news that they would have to seek some amendments to their credit agreements--those are all things that were a surprise,” Ching said. “It shows that there’s still a lot more work to be done.”
