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Lucent: Down-and-Out in Optics Land

Not long ago, life was much simpler. By investing in such companies as Microsoft, Intel, Cisco and Lucent meant not only security, but above-average returns. It was a no-brainer.

Of course, bear markets can be brutal. In bear markets, nothing is safe.

In fact, in the past year, we have seen a variety of mega-meltdowns of seemingly invincible stocks. Who would have thought you would be able to buy Lucent at $21? Ludicrous.

Yes, the worst nightmares of Lucent have come true. The big question is: Time to buy?

Well, Lucent is apparently making serious changes. First of all, CEO Richard McGinn is now unemployed (although, like many other failed big-time CEOs, he'll probably make millions in the exit).

Unfortunately, it may be difficult to attract a CEO. The optical networking industry is red hot. So why leave a strong company? Executives at such companies as Sycamore Networks, Corvis and others have very lucrative stock option arrangements. A compensation package would need to be downright excessive.

Speaking of stock options, there must be many Lucent employees that are disgruntled with their under-water holdings. With talent being a prized asset in the fast-growing communications industry, there is a threat of a brain drain at Lucent.

Really, the blame for the problems at Lucent are with management. Pure and simple. After all, how is it possible to mess-up when your industry is red hot? It's inexcusable. And now Lucent shareholders are paying the price - more than $150 billion in market cap destroyed.

The medicine for Lucent will be bitter. The company needs to completely rethink its product strategy; there needs to be a major revamping of its sales force; and there needs to be better internal controls and forecasting (hey, Cisco can close its books at the end of the day). More important, Lucent needs to find a way to encroach on the dominance of Cisco, Nortel and Juniper for high-end networking equipment.

According to the interim CEO, the troubles of Lucent mean that the company will be in the "rebuilding" stage for 2001. However, in the fast-paced optical world, restructuring can be fatal, as competitors gain more momentum.

Now, a high-powered CEO can turnaround Lucent - the company definitely has inherent strengths. But it will take time. And, in the communications industry, time is something that can't be wasted.