RealTime IT News

Lucent Still Sees Light At End Of Tunnel

Lucent Technologies executives reiterated their confidence in operations turning cash flow positive by the end of 2002 and see the first quarter of 2002 as the beginning of a turnaround, according to its financial earnings released Thursday.

Officials expressed their confidence by deciding to finalize the spin off of its semiconductor subsidiary, Agere Systems , Mar. 31, 2002, using the money generated during an initial public offering (IPO) in March.

If true, Lucent's return to profitability would mark a dramatic comeback for a once-stellar company that was brought to the brink of collapse, in large part, by questionable accounting practices and ill-advised vendor financing.

Lucent revenues for the first quarter of 2002 are significantly less than the previous quarter, down $1.4 billion (by conservative estimates) to $3.1 billion. Officials blame a continued lack of interest for network equipment for intranet builds and lack of explosive growth as seen two years ago in the telecom industry.

But Henry Schacht, Lucent chairman and chief executive officer, said indicators suggest sales performance will improve and continued improvement with the company's bottom line, made possible by tough restructuring measures, will make profitability a certainty in the next year.

"We continue to move swiftly and decisively on all points of our Phase II restructuring program, which is driving sequential improvement in our bottom line, despite this reduction in sales," Schacht said. "An early view of our sales funnel continues to suggest an improved sequential top line performance and continued sequential improvement in the bottom line in the second fiscal quarter, on a pro forma basis."

The manufacturer's Phase II restructuring program, begun in August and ending next quarter, has forced officials to run operations in a completely different manner than in the past. Phase I in January was the first step in Lucent's new mindset 10,000 employees were laid off with the threat of 6,000 more to come at the same time managers promised to shave $400 million in capital spending.

But the company's biggest challenge to date has been getting a rein on its vendor financing, a program initiated in the heyday of the company's fortunes that's come back to haunt them with a vengeance.

Two years ago, when the Internet industry was experiencing a boom in popularity and use, service providers and carriers started a big rush to find new markets. Lucent and others, like Cisco Systems, Inc., initiated a practice of floating loans to these providers to secure purchase of routing equipment needed for nationwide deployment.

Lucent extended $8.1 billion in credit, all told, when the Internet boom busted and sent hundreds of service providers to bankruptcy court, leaving Lucent with billions in unpaid equipment bills.

What's more, Lucent bean-counters used the practice to bolster the company's bottom line on paper. Once the agreements were taken out of the loop as a company revenue-generator, it accounted for an 18 percent drop in the company's finances, exacerbating the public's impression of a company about to go bankrupt.

Frank Briamonte, Lucent spokesperson, said the company has made huge strides to correct previous mistakes and has reduced that $8.1 billion amount over the past year to $5.3 billion at the end of September. The customers they makes deals with these days don't need financing. Briamonte said.

"Now, given the fact that we've made the strategic decision to focus on the top service providers, those types of customers don't need financing," he said. "We expect that (vendor financing) number to continue to go in the right direction."