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Lucent CEO Outlines Recovery Plan

Lucent's recovery formula consists of new business from services, partnerships and the federal government, combined with continued cost-cutting, CEO Patricia Russo this morning on a conference call with analysts.

Russo's comments came as the Murray Hill, N.J., telecom equipment maker posted its 13th straight losing quarter -- a deficit of 7 cents per share on revenue of $1.96 billion (an 18 percent drop in revenues compared to the second-quarter).

The company also pushed its profitability point into 2004. Previously, Lucent expected the milestone by the end of this year.

Weak sales in the mobile group were to blame. Verizon Wireless orders were lower than expected and Reliance InfoComm did not accept delivery of equipment in time for the sale to be included in the figures.

Yesterday's news that Lucent won a $1 billion deal with Sprint to upgrade its U.S. mobile network helped soften the blow somewhat, but Russo acknowledged that there is still "work to be done."

That said, the company will focus on three areas. The first is services. Lucent is pushing its services -- network design, integration, management and maintenance -- to take advantage of the expertise of its employees.

It recently landed $50 million in new contracts to upgrade and integrate voice and data networks at Army bases in North America and Asia and a $100 million deal to manage a new 3G mobile network in New Zealand.

Lucent likes the deals. They provide recurring revenue and allow it to work on lucrative projects even if it isn't the primary gear supplier.

Partnerships represent a second area of potential growth. Lucent recently inked a wide-ranging deal with Juniper Networks and early results from joint sales efforts are promising.

"We have two contracts that have not yet been announed where we include a combination of solutions," Russo said. "It's hard to predict what we'll see and in what time frame . . . but we anticipate this relationship will produce results for both of us."

Lucent continues to look for partners, especially with providers who have a strong presence in the enterprise market, an area where the company has not traditionally been strong.

Finally, there is the federal government, which is boosting its IT spending to tie together disparate systems and departments in an effort to improve communication and collaboration.

In addition to its recent Army win, the company is among the bidders for a major Department of Defense contract, Russo said.

Despite a plan that projects opportunities in these business segments, Lucent is still a huge company and, as this quarter demonstrates, a slowdown in one or two areas can cause a major setback.

Besides economic concerns, especially in North America, Lucent must keep an eye on other factors. Executives declined to speculate on the impact of a looming strike at Verizon, one of the firm's largest customers.

Some analysts also feel that the company needs deeper cost cuts, including reducing its workforce further. During the most recentl quarter Lucent reduced staff from 38,500 to 36,500.

"We're working further to reduce our break even point," CFO Frank D'Amelio said. "At the same time, we need to balance that with need to invest in opp such as services, partnerships and the government."