Lucent jumps on Verizon Wireless deal

Lucent Technologies shares surged after the company announced a deal with Verizon Wireless that will make it the largest supplier of Verizon Wireless' third-generation mobile network infrastructure.

Investor response to the deal was positive. Shares shot up $1.43 to $11.42, or 11 percent, in heavy trading. Lucent (NYSE: LU), which hasn't had a lot of good news lately, makes chips and software for high-growth areas such as broadband and mobile Internet infrastructure.

Verizon Wireless is a wireless communications provider in the United States, and was formed as part of a joint venture by Verizon Communications (NYSE: VZ), off 17 cents to $47.25, and Britain's Vodafone Group (NYSE: VOD), up 61 cents to $28.71.

Under the three-year, $5 billion contract, Verizon Wireless will begin to deploy its first phase of third-generation (3G) technology, known as Cdma2000, later this year, using Lucent's products, services and software. The new technology will potentially double Verizon's existing network's voice capacity and increase data-transmission speeds by 10 times.

This is the second piece of good news helping Lucent's stock recover from new lows. In February, the company announced it had secured $4.5 billion in loans to fund its business and avoid the potential reduction in its credit rating to junk status. The company's stock has fallen from a 52-week high of $75.38 to a low of $9.85 as Lucent has restated fourth-quarter earnings, and announced restructuring including 10,000 layoffs.

SG Cowen analyst Christin Armacost reiterated a "buy" rating Monday and called the deal a "major win that will help offset (Lucent's) loss of two major wireless customers in 2000."

Wachovia Securities analyst George Hunt reiterated his "neutral," and he noted that under the landmark deal--it's the first commercial 3G implementations in the United States--Lucent will likely be supplying as much as 65 percent of the network.

Armacost also noted that the contract could contribute over 25 percent of Verizon's estimated wireless revenue for 2002.