Lucent Struggles Continue

Lucent Technologies Inc., in Murray Hill, N.J., continued its downward spiral last week as angry shareholders brought a class action suit against the network equipment giant, alleging it provided investors with false and misleading financial information. The suit came in response to the firm’s announcement earlier this month that it was revising its Sept. 30 earnings report, reducing the revenue figures by $125 million, a change that shaved 2 cents off of its earnings per share. The company said it had discovered a revenue recognition problem, which means the firm was counting sales that either had not been shipped or had not been paid for.

The snafu is the latest in a series of missteps by the telecommunications giant. Lucent has strung together so many disappointments recently that the company’s problems seem to get worse each day; said Rosemary Cochran, a principal at Vertical Systems Group Inc., a Dedham, Mass., market research firm.

Projections Gone Awry

With $34 billion in annual revenue, the company represents the industry’s largest network equipment supplier. Yet as competitors like Nortel Networks Inc., of Brampton, Ont., and Cisco Systems Inc., in San Jose, Calif., have been able to deliver impressive revenue numbers on a consistent basis, Lucent has continually fallen short of projections. With its profits dropping 10% in fiscal year 2000, the company’s stock has plummeted from $82 per share at the end of 1999 to about $15 now.

Problems in the optical networking area, an area of dramatic growth as carriers boost bandwidth to keep pace with rapid Internet growth, illustrate the firm’s travails. At the end of 1998, the company was the top dog with 28% share, according to the Dell’Oro Group Inc., a Redwood City, Calif., market research firm. However, the network equipment supplier’s market share dropped to 14% in the third quarter 2000 as the company fell far behind Nortel Networks, which now has 43% market share.

Lucent has really struggled developing new products and then putting the infrastructure in place to deliver them, stated Shin Umeda, a principal analyst with the Dell’Oro Group.

Project Delays

Carriers have been looking to 10Gbps optical routers to move traffic on their backbone networks. Although Nortel has been delivering such a product since the spring of 2000, Lucent is still testing its system.

One reason for the delays may have been a dramatic reshaping of the business. In September, Lucent spun off its enterprise equipment unit as a new company dubbed Avaya Communications Inc., of Basking Ridge, N.J. The shuffling may have diverted management resources from more pressing issues, such as developing and delivering new products

Nortel and Cisco faced the same problems with their enterprise products as Lucent did but those companies have been able to exploit new opportunities while Lucent has not, noted Vertical Systems Group’s Cochran. The company has been plagued by a lack of direction and poor management decisions.


The network equipment supplier seems to be aware of the problems. Prior to reporting its September earnings, the firm replaced CEO Richard McGinn with Henry Schacht, who had served as Avaya’s CEO. In addition, Lucent announced layoffs, as well as an organization restructuring.

Will the changes be enough to stem the negative tide? Lucent has been talking about turning its business around for several months; the time has come for the company to start delivering tangible results rather than making more promises, concluded Vertical Systems Group’s Cochran. //

Paul Korzeniowski is a freelance writer in Sudbury, Mass. and specializes in networking and telecommunications issues. His electronic mail address is [email protected].

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