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Lucent gains on earnings

Lucent Technologies (NYSE: LU) said Wednesday net income for its second quarter rose 41 percent to $754 million or 23 cents a share, a penny above First Call's estimate.

The company also said it will change its manufacturing process to focus on the high growth areas of wireless and enterprise networking.

Shares were up 3 11/16 to 84 3/16 Wednesday. The stock surged in March when the company first announced plans to spin-off its PBX, SYSTIMAX structured cabling and LAN-based data businesses to form a new company in the hot area of enterprise networking.

After posting a 23-percent drop in first-quarter profits due, in part, to an inability to keep up with customer demand, Lucent said it would increase its optical manufacturing capacity and spin off slow-growing businesses to focus on wireless equipment and Internet infrastructure -- including optical and data networking systems and optical fiber.

Earnings of 23 cents a share for its second quarter were 25 cents a share on a pro forma basis. This compares with $535 million or 17 cents a share a year ago, or 19 cents a share, pro forma.

Revenue increased 17 percent to $10.26 billion versus $8.78 billion a year ago.

Pro forma earnings per share for ongoing Lucent operations, which exclude the parts of the enterprise networks business that are expected to be spun off later this year and the consumer products business, which was sold, rose 24 percent to 21 cents a share. Revenue for ongoing operations increased 26 percent to $8.325 billion versus $6.604 billion a year ago.

As Lucent is regaining its momentum this quarter, chairman and CEO Richard McGinn noted that revenue for both wireless and service provider Internet infrastructure increased by more than 50 percent.

The company also said in a conference call Wednesday it expects gross margins to improve starting in the current quarter following the sharp drop seen in the last quarter. Gross margins will return to historic levels of 45 to 49 percent during the current quarter and beyond.

Going forward, Lucent said it expects accelerating growth in optical networking based on strong contract momentum; the company inked more than $1 billion in new contracts for its optical networking products during the quarter. Overall contract backlog for ongoing operations increased by 25 percent year-over-year.

The company predicted revenue from ongoing operations will grow in excess of 20 percent for the last 2 quarters of 2000 on a year-over-year basis. Given the slow start to the year, this is expected to result in full-year fiscal 2000 revenue growth of about 17 percent.

Pro forma earnings per share growth for 2000 is also expected to be about 17 percent, also reflecting the year's slow start and investments in the optical and optoelectronics markets, as well as the dilution associated with the acquisitions of Ortel and Agere.

The earnings was just a part of a Lucent news barrage Wednesday:

  • In a separate release Lucent said it will cut out some manufacturing functions in order to boost its return of assets and cash flow. The company is considering contracting out some of its business to contract manufacturer or an employee group.

  • Other Lucent news Wednesday included the launch a new suite of voice and data over digital subscriber line (DSL) equipment, the CellPipe(TM) Integrated Access Device (IAD) Family.

  • Lucent also inked a deal to address the market for integrated broadband services with Winstar Communications Inc. (Nasdaq: WCII). The company will deploy Lucent's new suite of integrated IADs to business customers in Winstar buildings in the US and internationally.

    Lucent has been pitted against Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE: NT) in the battle to supply telephone companies and Internet service providers with networking equipment.

    Reuters contributed to this report.

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