Lucent CEO Calls Weaker Year View A Temporary Setback
NEW YORK -(Dow Jones)- Lucent Technologies Chief Executive Pat Russo said she considers the company's weaker revenue expectations for the year to be a short-term issue.
"While we are clearly disappointed in having to change our guidance, we consider it to be a temporary setback," Russo said during a conference call Tuesday to discuss its quarterly results.
The Murray Hill, N.J., telecommunications equipment maker reported a net loss of $104 million, or 2 cents a share, reversing a profit of $174 million, or 4 cents a share, from a year ago. Results included a charge of $278 million, or 6 cents a share, related to a court judgment that went against Lucent in favor of now bankrupt Winstar Communications Inc.
As the company had previously warned, it posted sales of $2.05 billion, down 12% from the $2.34 billion posted a year ago. Lucent did maintain its gross margin of 42% through cost cutting and the simplification of its operations, Russo said.
The company backed its 2006 sales forecast and still expects little to no increase from 2005.
Still, Russo said there was reason for optimism. She said the continued investment in next generation networks such as Internet protocol multimedia subsystems should create new opportunities for Lucent.
The wireless industry is expected to continue adding capacity, especially as carriers upgrade to third-generation, or 3G, networks, she said. Revenue contribution from investments related to UMTS, or the next generation of GSM networks used by the likes of Cingular Wireless, should occur in the second half.
Around the world, Russo said, Lucent was seeing progress in rolling out Internet-based television in Latin America, while the company was seeing contract wins relating to 3G networks. In Korea, Japan, and India, revenue should improve in the second half, driven by investment in wireless applications and service offerings, she said.
Lucent typically has a strong fiscal first quarter as its customers tend to increase spending as the year winds down. Chief Financial and Operating Officer Frank D'Amelio said that wasn't the case this year. In fact, customers actually tightened their spending in some cases, he added.
"We actually saw a pullback," he said.
As a result, Lucent expects its services business to post revenue growth at or below 10% from a year ago. It previously expected its services segment to post 10% or higher growth. D'Amelio said the growth-rate expectations are still impressive despite the revision.
In many cases, Lucent has unveiled contract wins that have not yielded any revenue yet, D'Amelio said, which gives him confidence that things will improve.
"We see lots of encouraging signs across our business," he said.
Chief Executive Russo added that the lack of a budget flush shouldn't be taken as a sign of things to come for the year.
She noted Lucent was working with Verizon Communications (VZ) in conducting tests for its IMS network. She said Verizon represents a potentially key customer.
D'Amelio said he considers the current portfolio of IMS contracts "appetizers" and that the larger contracts are still down the road.
Internationally, Lucent did see weakness due to a decline in CDMA sales in China. D'Amelio added the company's expectations don't assume any revenue from the expected granting of 3G licenses in China.
In the quarter, the company also recorded a net pension and post-retirement credit of $104 million, down $81 million from the prior quarter. Lucent continues to expect its credit to fall by $300 million in 2006 from the $718 million recorded last year.
Research and development in the quarter fell $36 million to $283 million. D'Amelio said the decline was attributed to lower mobility trial expenses, lower accruals for employee incentive awards, and increased operational efficiencies.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 24th January 2006