Investors abandoned Murray Hill, N.J.-based Lucent's stock yesterday after the company announced its first quarter will miss earnings by 15 cents to 18 cents per share and sales will fall $1 billion below Wall Street analysts' estimates.
The earnings shortfall is the most significant problem Lucent has faced in its young history since spinning off from AT&T in 1996. Lucent executives blamed its first revenue shortfall on the company's inability to meet customer demand for optical networking equipment, lower software sales, and flat growth in wireless equipment.
Rival phone equipment makers took immediate advantage of Lucent's misery. Executives from Nortel, Alcatel, Newbridge Networks and Ericsson all announced that their companies will meet analyst's estimates for their fall quarters--and investors today flocked to their stocks.
"The message people are taking away is that Lucent screwed up," said analyst Martin Pyykkonen of CIBC World Markets. "Their conclusion is that Lucent must be losing something to (its competitors), that they might be good at beating Lucent to some degree--such as Ericsson in the wireless market, Cisco with the (Internet data) infrastructure, and Nortel and Ciena with optical equipment."
Lucent's stock stabilized today, inching up 1 point--but its competitors soared. At 1 p.m. PT, the close of regular market trading, Nortel shares were up 20.25, or 27 percent, to 97.25, while Ciena's shares gained 11.88, or 26 percent, to 57.75.
Shares of Ericsson increased 8 percent, Cisco and Newbridge Networks rose 6 percent, and Alcatel increased 5 percent.
While Lucent is considered a bellwether for the telecommunications equipment industry, analysts say rival companies didn't take hits in their stocks today because Lucent's troubles is not indicative of the market, where Cisco's sales jumped 49 percent last quarter and Nortel's revenue increased 30 percent.
"The basic message is that this is an issue specific to Lucent, and not telecom-market related," said analyst Joseph Bellace, of Jefferies & Co.
Analyst Paul Sagawa, of Sanford C. Bernstein, said Nortel is in the best position to capitalize on Lucent's woes in the optical market. Cisco, which recently made acquisitions in the optical arena, won't release products until later this year, he said.
Earlier this year, Nortel also had trouble meeting customer demand for optical equipment, he said. As a result, the company recently invested $400 million to build more manufacturing plants to increase production.
"It's good for Nortel, but I don't know if they can add a lot (more) capacity," he said.
Lucent believes it will back on track by the second half of 2000. Some analysts agree, but others remain skeptical as they downgraded the company's stock today.
"Lucent's stock is on sale and it's cheap merchandise, but I wouldn't buy it today," said Pyykkonen, who downgraded the stock from "buy" to "hold."
"The company has put a lot of burden on growth on the second half of the year," he added. "It's like a football game: You're down 21-0 midway through the first quarter. You say you've got potential to win, but I want to see that it's 21-14 by half-time."