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.”
