Lucent Technologies expects return to profitability in fiscal year 2002

Oct. 23, 2001
Lucent has reported revenues of $5.2 billion for the fourth fiscal quarter of 2001 compared with $5.9 billion in revenues achieved in the third fiscal quarter of 2001. On a sequential basis, the pro forma loss per share from continuing operations improved from a loss of 35 cents to a loss of 27 cents. The fourth fiscal quarter pro forma results exclude business restructuring and one-time charges of $8 billion, and the amortization of goodwill and acquired intangibles.

Lucent Technologies (Murray Hill, NJ) has reported revenues of $5.2 billion for the fourth fiscal quarter of 2001 compared with $5.9 billion in revenues achieved in the third fiscal quarter of 2001. On a sequential basis, the pro forma loss per share from continuing operations improved from a loss of 35 cents to a loss of 27 cents. The fourth fiscal quarter pro forma results exclude business restructuring and one-time charges of $8 billion, and the amortization of goodwill and acquired intangibles.

“We delivered continued improvement in the bottom line and a solid top-line performance in the face of sharply reduced spending throughout the industry,” said Lucent Chairman and Chief Executive Officer Henry Schacht. “Despite the short term weakness in the market, we believe that our Phase II restructuring actions will drive our return to profitability and positive cash flow in fiscal year 2002.”

Compared with the fourth fiscal quarter of 2000, revenues declined 28 percent to $5.2 billion, and the pro forma loss from continuing operations was $909 million, or a loss of 27 cents per basic and diluted share. For fiscal year 2001, revenues declined 26 percent to $21.3 billion and the pro forma loss from continuing operations was $4.7 billion, or a loss of $1.39 per basic and diluted share compared to the prior year.

Comparing the first fiscal quarter of 2001 to the fourth, Lucent reports significant progress in the following areas:
•Cash flow improved by nearly $2 billion. Cash flow was negative $2.2 billion in the first quarter of fiscal year 2001. For the quarter ended Sept. 30, 2001, the company's cash flow was negative $280 million.
•Expense run rate declined by $2.4 billion. As a result of its continuing restructuring efforts, Lucent's annual expense run rate has declined by $2.4 billion from the first fiscal quarter to the quarter ending September 30.
•Headcount reduced by 29,000. Lucent's workforce was 106,000 at the end of the first fiscal quarter, excluding Agere Systems. At September 30, it was 77,000. The reduction was achieved through a combination of force reductions, a voluntary retirement offer, divestitures of businesses, and attrition. The company expects to reach its target of 57,000 to 62,000 employees by the end of the second fiscal quarter of 2002 through previously announced job reductions, attrition, outsourcing plans and the completion of the sale of the optical fiber business.

“As we said on August 23, the market continues to decline,” said Schacht. “Like others in the industry, we now believe the overall market decline in 2002 will be 15-to-20 percent, and our targeted market will be down 10 percent or more. We think industry spending in our first fiscal quarter of 2002 will be even lower than these levels due to the increased uncertainty after September 11 and the spending patterns of our large North American customers.”

The pro forma gross margin for the quarter represented 12.5 percent of revenues from continuing operations, a sequential decrease of 4 percentage points and a decline of 21 percentage points compared with the year-ago quarter. “In the quarter, gross margin was primarily affected by significant inventory-related charges, lower sales volumes as many large service providers are delaying their capital expenditures, and geographic mix,” said Lucent Chief Financial Officer Frank D'Amelio. Without the charges related to inventory, Lucent's gross margin for the quarter would have represented approximately 21 percent of revenues.

Using the company's 12.5 percent gross margins recorded in the fourth fiscal quarter of 2001 as a base, Lucent expects to achieve 35 percent margins in fiscal year 2003 through the following:
•Improved sales volumes and product mix, which will increase margins by 4-6 percentage points.
•Reduction of one-time items like inventory-related charges, which will increase gross margin by 7-9 percentage points; BR>•Implementation of cost reductions, which will add 3-5 percentage points to the margin;
•Market and product rationalization work will increase margins by 2-5 percentage points;
•Introduction of new products, which will yield an additional 2-5 percentage points.

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