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.