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SEC takes a hard look at Lucent

Lucent Technologies confirms it is under investigation by the Securities and Exchange Commission for problems with its accounting practices.

Lucent Technologies confirmed it is under investigation by the Securities and Exchange Commission for problems with its accounting practices.

Lucent said it is cooperating with an SEC investigation of some revenue accounting errors it first made public on Nov. 21 of last year involving $125 million of revenue booked in the fourth fiscal quarter.

After an internal review, the telecommunications equipment maker found that it had bigger accounting problems, to the tune of $679 million.

A month later on Dec. 21, the company restated pro forma fourth-quarter earnings to 10 cents a share, on revenue of $8.7 billion. Previously, Lucent had reported earnings of 18 cents per share, on revenue of $9.4 billion for the same quarter.

The investigation adds to a series of questions and unfortunate management decisions that have hampered the company over the past year and driven its stock into the ground.

Since late 1999, Lucent has warned Wall Street four times that it would miss financial targets. The company ousted its CEO last October, and announced layoffs last January.

Lucent spokesman Bill Price believes the company has done nothing wrong regarding its accounting problems.

"On Nov. 21st we publicly announced that we had discovered an error, and that we would investigate it," said Price. "We have been sharing information with the SEC. We voluntarily brought this to the SEC. It feels like we're being beaten by the same stick."

Price wouldn't call the process an "investigation," saying it was up to the SEC to call it that. "We expected (the SEC) would look at this thoroughly and completely and that's what they're doing," Price said. "We've done our own internal investigation and with outside auditors and shared that information with the SEC. And they're doing their own due diligence and have questions of their own."

The SEC would neither confirm nor deny that Lucent is under investigation.

Some analysts acknowledge that the SEC's delving into Lucent's accounting glitches is old news. "Everything they're investigating is something that Lucent told them about already," said Michael Jung, an analyst at SG Cowen. "Maybe they're looking for more specific things to explain what happened, like specific people or specific accounting practices."

Yet there is no question that the company has some work to do to again earn Wall Street's good graces.

Jung believes that company's growth targets set 12 to 18 months ago were too aggressive. He says Lucent also fell behind in its technology in 1998 when Nortel introduced its new 10GB optical equipment, which hacked away at Lucent's market share.

"They broke the company trying to grow too fast," said Steven Levy, an analyst at Lehman Brothers. "Wall Street needs to see signs that they have stabilized the business and returned it to a more reasonable growth pattern."