Lucent narrows IPO range for Agere

The company makes further preparations to spin off its Agere Systems communications chip unit as the optical sector continues to take a beating.

3 min read
Lucent Technologies made further preparations to spin off its Agere Systems communications chip unit as the optical sector continues to take a beating.

Lucent narrowed the initial offering price of Agere to a range of $16 to $19 a share from the $15 to $20 range the company set Feb. 7 for the maker of components for telecom equipment, according to documents filed with the Securities and Exchange Commission on Tuesday.

The adjustment makes the 370.3 million share offering worth as much as $7.04 billion.

Agere's voyage into the markets comes at a precarious time for Lucent and the optical sector as a whole, but some analysts think now might be as good a time as any considering the punches the sector has taken recently.

"I don't think the timing will get any better" for the IPO, said Paul Sagawa, an analyst at Sanford Berstein.

Lucent, a maker of telecom equipment, has taken a beating over the past year after numerous earnings warnings. An investigation by the SEC into the company's accounting practices has also strained the company's credibility with Wall Street.

Investors have also pummeled other optical companies during the past few months. Nortel Networks shares set new lows last Friday after the maker of telecom equipment issued a profit warning last Thursday.

Sagawa said a successful IPO will also give Lucent a much needed cash infusion, giving the company some good news to trumpet for a change.

But Wall Street still might not give the company a break. In fact, some analysts are skeptical over Agere and even value Lucent's remaining optical wireless and data network services less than the spinoff.

"Most people are not valuing Lucent's remaining service provider businesses very highly right now," SG Cowen analyst Michael Jung said. "Investors are more cautious because of the internal problems and competitive problems at Lucent."

Agere also warned investors in the filing that a slowdown in spending by telecom customers might crimp its performance.

Agere said it is experiencing lower demand for its products during the current fiscal second quarter and expects revenue and operating income for the quarter to be below first-quarter levels. Agere also expects inventory to climb as well.

This adds to a recent downward trend over the past few quarters. Agere said in a filing that revenue fell to $1.36 billion for the fiscal first quarter ended Dec. 31, from $1.49 billion for the fourth quarter ended Sept. 30.

The company's shares now trade at around $13 compared with a high of $75.37 over the past 52 weeks, and Jung reckons Agere may be worth about $7 to $8 of that.

Analyst reports released before Tuesday's news roughly agree. A recent report by Epoch Partners analyst Seth Spalding puts Agere at $4.89 per Lucent share.

In another recent note, ABN Amro analyst Ken Leon valued Agere at $9 a share, but also said that "Agere Systems does not have any competitive advantages in the market, and its operating efficiency has been well below the benchmarks set by its peers."

Such sentiment might make things a little rocky for Agere and its parent, but Lucent is still soldiering on. The Wall Street Journal reported Tuesday that the company is likely to succeed in its efforts to raise $6.5 billion in financing from its bankers.

The company may need every penny. Wall Street expects it to report more losses for the next two quarters, according to consensus analyst estimates compiled by First Call.