LUCENT'S SHORT-TERM CLOUDS SAID TO OBSCURE POSSIBLE BRIGHT FUTURE
Shares of Lucent closed up $1.17 to $7.92 following precipitous drop to 52-week low of 5.50 Wed. on heels of bankruptcy rumor quicky squashed by company. Rumor, spread in part by Internet chat boards, was credible to enough investors to trigger 30% plunge in early morning trading. Incident highlighted Lucent’s financial situation, which is far short of Chapter 11, but still precarious.
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Most analysts agreed Lucent’s troubles were result of bad business decisions, greatly exacerbated by downturn in telecommunications and network equipment markets. Much attention has been given to Lucent loan commitments worth $5.7 billion, $1.8 billion of which has been drawn down by customers, many of them CLECs that may never repay Lucent. Even more pressing is $2 billion short-term debt due by Sept. that will force quick sale of company’s fiber unit and possibly wireless assets. Lucent announced restructuring, including cutting 16,000 employees and reducing costs by $2 billion by end of year. Lucent also secured $6.5 billion line of credit in Feb. to aid liquidity crunch.
Little noticed is fact that Lucent is rapidly fixing one of major problems that caused its current difficulty -- its lack of products. “It is generally accepted that Lucent missed its OC-192 introduction” losing out to rivals such as Nortel. “Lucent is clearly catching up,” said RHK analyst Anna Reidy who follows optical equipment market. Finding itself year behind competitors in optical transport and investing too heavily in less favored technology such as asynchronous transfer mode began Lucent’s slide, analyst said. Assuming Lucent works through short-term financial woes, Reidy sees good prospects for its Lambda Router all-optical switch adding product will be “fully competitive.” Company has made good investments in Ethernet and other transport technologies, she said.
FCC Chmn. Powell said he was optimistic about future of telecom sector, despite rash of financial problems. Lucent’s recent woes underscore fact that “network industries are part of a system and when one component is ailing, often there are reverberations throughout the system,” he said in news conference (see stories elsewhere in this issue). One thing for certain, Powell said, FCC “is not going to take the blame for the way the venture capital markets perform.” He said piece in which FCC is involved -- interconnection rates -- is important, “but to suggest it is the determining factor is exaggerated.” It may sound “harsh,” he said, but market forces not only reward but also sometimes punish. Today’s economic problems aren’t “unique to this sector,” he said. He also cautioned against taking “passion play” mentality of “evil incumbents and blessed competitors” in viewing competitive sector’s downturn. “At some point, people will start to salivate” for investment in this market, he said. “If I thought the fundamentals were deeply cracked, I'd be more concerned.”