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Lucent shares rally despite loss

Plagued by a decline in customer spending and a $2.7 restructuring charge, the communications equipment maker endures slackening revenue and a widening loss.

Plagued by a decline in customer spending and a $2.7 billion restructuring charge, Lucent Technologies saw its revenue slacken while its loss widened considerably.

Excluding Agere, a division partially spun off by Lucent, revenue from continuing operations for the second fiscal quarter was $5.9 billion, down 17 percent from a year ago, the company announced Tuesday. The pro forma loss for continuing operations during the period ended March 31 was 37 cents per share.

Analysts were expecting the company to report a loss of 23 cents per share for the second quarter, with revenue of $6 billion, according to First Call. But the consensus figures include some estimates that add in Agere's results.

Including the restructuring charge, amortization of goodwill and other acquired intangibles, and a loss from discontinued operations, Lucent posted a loss of $3.7 billion, or $1.08 per share.

The numbers are difficult to interpret given the variety of charges and spinoffs.

Lucent shares moved up $1.05, or nearly 12 percent, to $10.25 by market close.

Alex Henderson, an analyst at Salomon Smith Barney, upgraded the stock from a "neutral" rating to "outperform."

"Given the sharp erosion during the quarter at Nortel and Cisco, we think producing results in line with published numbers is considerably better than the fears harbored by most investors," he wrote in a research note. "We think the stock is likely to rally off these numbers."

Despite the huge loss, Lucent's second-quarter results improved 5 percent from a pro forma first-quarter loss of 39 cents. The company said in January its financial results would improve each quarter through the year.

"The company's waking up and focusing on what we all care about, which is getting this ship to turn around," Richard Steinberg, president of Florida asset management company Steinberg Global Asset Management, told Reuters.

The Agere spinoff
Separately, Agere announced Tuesday that it earned $4 million in the second quarter, excluding amortization of goodwill and purchased research and development, restructuring charges, and income tax adjustments--roughly breakeven on a pro forma earnings-per-share basis. Revenue was $1.2 billion. Agere also announced plans to lay off 2,000, or about 10 percent, of its work force.

Lucent said it recorded a net loss of $308 million for discontinued operations. This includes Agere's loss for the second quarter as well as costs associated with the spinoff and Agere's assumed future losses.

Lucent's restructuring charge is far wider than expected. Lucent announced in January that it would eliminate 10,000 jobs as part of a restructuring designed to save the company $2 billion in expenses. At the time, the company said that the restructuring would force a charge between $1.2 billion and $1.6 billion in the quarter.

On Tuesday, Lucent also said that "more aggressive product rationalization and associated asset write-offs" were responsible for the excess.

The company may face additional restructuring charges throughout the fiscal year.

But Lucent has made some progress in trimming costs. Company executives said it reduced operating expenses by $75 million during the quarter and that savings would pick up once the layoffs and inventory issues are settled.

About 2,000 workers have already been let go, with the remaining 8,000 scheduled to be laid off by July. The job cuts will mainly affect employees in marketing and sales and those with "corporate center functions"

The Murray Hill, N.J.-based company said it was still on target to hit the $2 billion in savings.

The cash position
Investors and analysts have expressed concern about the company's cash position. It managed to secure $4.5 billion in new loans in early March to fund its business and avoid the potential reduction of its credit rating to junk status.

The loans are guaranteed on the company, limiting losses to $2.35 billion over the rest of the fiscal year, which ends Sept. 30. Lucent also said it would earn at least $2.2 billion during the 2002 fiscal year.

"Lucent's cash balances need to be scrutinized to determine its ability to meet near-term financial obligations," wrote Merrill Lynch analyst Michael Ching. He noted that the company ended the quarter with $1.4 billion in cash on hand, below his prediction of $2.6 billion.

Lucent said it has put a program in place to reduce expenses throughout the company, hiring outside consultants and naming an executive to monitor spending. Capital spending dropped $100 million more than was originally planned, and the company is on track to reduce fiscal-year capital spending by $400 million from earlier plans.

Lucent also reported a 15 cent-per-share charge for loans to Winstar and write-offs of certain equity investments. Lucent said it has fully accounted for its loans to Winstar, which recently filed for bankruptcy protection and filed a $10 billion lawsuit against Lucent.

"Getting back to basics is yielding results," said Chief Financial Officer Deborah Hopkins on a conference call. "We saw sequential improvement in both the top and bottom lines despite the adverse impact of Winstar, and our business restructuring program is generating significant positive results for the business."

Hopkins added that she expects "modest sequential improvement" for the upcoming quarter, but she wouldn't get into specifics. Revenue from the products division was $4.8 billion, up 42 percent from the first quarter, but down 19 percent from last year. The company said an industrywide slowdown hurt sales, especially in the United States, where sales were off 15 percent from last year.

Services revenue was $1.1 billion, up 20 percent from the first quarter and essentially the same as it was a year ago.

Staff writer Larry Barrett contributed to this report.