Lucent to Cut 7,000 Jobs Amid Huge Loss

Already trying to reduce vendor financing deals it struck before the tech recession, the networking hardware maker is further affected by the telecom meltdown.

by Erin Joyce Managing Editor, atnewyork.com [July 24, 2002]

Networking hardware giant Lucent (NYSE: LU) struggling to withstand a severe drop in orders from the telecommunications industry, said it would lay off about 7,000 workers as it posted a second quarter loss of $7.84 billion ($2.30 per share).

The Murray Hill, N.J.-based company, said its revenues were $2.9 billion during its third fiscal quarter ending June 30, down by half compared to the $5.9 billion it took in during the same time a year ago.

The $7.84 billion loss was more than double its year-ago loss of $3.2 billion (55 cents per share), driven by the collapse in demand from telecommunications providers who pulled their orders of switches and networking hardware. In addition, Lucent is already struggling to shed long-term of debt of $3.2 billion and reduce vendor financing agreements that left it in the lurch after the tech recession hit. During the quarter, Lucent said it reduced its total vendor financing commitments to $1.95 billion from $2.22 billion as of the end of March.

The ongoing pain in the telecommunications sector was palpable in Lucent's bottom line numbers. Equipment sales were down by 22 percent in U.S. markets, and about 20 percent outside the U.S., the company said during an earnings discussion. Accounts receivable fell by $592 million during the past three months and its days of sales outstandinng (the time that it takes to collect bills) stayed flat.

Lucent counted 53,000 employees by the end of June and said it expects to reduce headcount by 7,000 employees by the end of the year, or roughly 13 percent. The layoffs will also result in a restructuring charge of about $808 million, the company said.

Patricia Russo, Lucent's chief executive officer, said the market continues to be very challenging for the company. "Capital spending constraints have intensified and remained in place much longer than anyone would have predicted."

Within Lucent's business lines, integrated network solutions sales fell by 61 percent from the prior year to $1.41 billion, down 21 percent from the prior quarter.

However, Lucent said it saw demand for IP network-based offerings and its Softswitch product during the period. Some bright spots included a five-year-contract to provide general network services to British Telecom's UK network; it also scored a contract with cable provider Comcast to help it build out Voice over IP services. SBC communications also chose Lucent's Centrex products for the backbone of its central-office services.

Within Lucent's mobility solutions division, revenues were off by 2 percent from a year ago to $1.45 billion and down 8 percent from the prior quarter. A demand for CDMA base stations, as well as burgeoning interest in Wi-Fi networking products, helped boost sales and ease the sales gap.

For example, Lucent said a strategic initiative with Agere Systems (via ORiNOCO wireless network division), Hewlett-Packard, and other providers to jointly sell wireless business service got its start during the quarter.

The division also snagged "significant contracts" for advanced CDMA 2000 network equipment from Telus of Canada, TelCel BellSouth of Venezuela, and KTF of Korea.

Throughout the tech downturn as well as amid current market jitters, Lucent is concentrating on working closely with customers to better position its products, reduce costs, and improve its balance sheet by hanging on to cash, officials said.

The loss included the tax impact related to the sale of its optical fiber business, ongoing restructuring costs, and new accounting rules related to goodwill amortization charges.

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