Lucent Warns First-Quarter Earnings Will Disappoint

Republished from 4:49 p.m. EST:

Lucent (LU Quote) shocked Wall Street Thursday afternoon by warning that first-quarter earnings will fall far short of expectations. Its shares fell sharply in after-hours trading, dropping 19 5/8, or 27%, to 53 1/16, as investors mulled over the company's difficulties.

Lucent (LU)

In explaining the shortfall, the Murray Hill, N.J., networking equipment maker cited manufacturing constraints, customer delays in network deployments, weakening software revenue and narrowing gross margins.

Lucent said in a press release issued shortly after the market closed that it expects to earn 36 to 39 cents a share for the first quarter ended Dec. 31. That leaves the company far short of the 54 cents a share anticipated in the consensus estimate quoted by First Call/Thomson Financial, and below the 48 cents a share it earned a year earlier.

The company said it expects to report revenue in the range of $9.8 billion to $9.9 billion for the quarter, flat with a year ago. Lucent said it was "clearly disappointed" with the results.

No Surprise to Some

The earnings warning apparently didn't come as a surprise to some traders. Lucent put options, often used to speculate on a falling stock price, were active Thursday ahead of the release.

Most of Thursday's options-trading activity was logged in the January 65 puts, which give the buyer the right to sell the stock at 65 by the third Friday in January. More than 2,700 of the January 65 puts traded and the price of the contract rose 11/16 ($68.75) to 1 3/4 ($175) by the close of trading.

The value of those options will increase if Lucent's price continues to fall.

Great Expectations

Lucent, long a stock market darling, boasting a market capitalization north of $200 billion, said it expects the capacity and deployment issues to be resolved by the end of the second quarter as new product introductions are completed, production adjustments meet increased customer demand, and additional resources are added for deployment. The company also expects the major network deployments that were delayed will occur during fiscal 2000.

Lucent said it still expects revenue to continue to grow 3 to 5 percentage points faster than the overall communications networking market. But given what it called "the slow start for the year, we expect to be in the lower end of that range for fiscal 2000." Lucent said analysts estimate that the overall communications networking market is growing at about 14% a year.

Lucent said it expects to show its strongest growth in the second half of fiscal 2000 as its newest optical, network access and semiconductor products ramp up for full volume and deployment.

For the year, Lucent said it expects bottom-line growth of about 20%-25% from the year-ago earnings of $1.20.

For the second quarter, the company indicated it expects revenue growth of 12%-15% from the year-ago $8.78 billion and profit growth of 25%-35% over last year's 17 cents a share.

Lucent expects to announce first-quarter earnings after the market closes Jan. 20.