Sure, Lucent Wins the Dumb and Dumber Award, but Let's Not Go Nuts, Huh?

This Lucent (LU) thing took me by surprise. Completely by surprise. I like Lucent; I think it's going to be one of the power companies of the next decade; I'm considerably long Lucent.

Then boom!

Feels like it used to feel when I took that occasional third strike from hell -- the pitch that completely fooled you. You were looking for him to blow it down the middle, and instead he chopped the edge. Or you were looking to get choked, high and inside, and instead he fed you a blue-streak fastball down the middle. And you stood there watching.

And then the world booed. At you. At me.

All of which means I'm mad. But I can't go hide in a corner of the dugout this time.

Lucent: TSC Message Boards

Lucent's press release revealing the likely earnings shortfall is, of course, maddeningly vague and incomplete. And LU wasn't offering up senior execs this afternoon for comments. (Would you? Me, neither. I'd go hide in a bunker somewhere in South Jersey. Which is probably what Lucent management is doing tonight.)

All we really know is that LU's guidance for its first quarter of fiscal 2000, which ended Dec. 31, said earnings would be down to 36 cents to 39 cents for the quarter, way below the year-ago quarter's 48 cents.

And of course it got worse in after-hours trading. LU closed down, officially, on the NYSE to 69 1/16, around 4 p.m., when the exchange stopped the trading. But on Instinet it fell almost 20 points more, finally wobbling around 52.

Tough, for a stock trading at 81 and change on Dec. 20 -- and which closed over 75 on Tuesday, apparently weathering the recent carnage pretty well. Very tough.

Where do you predict it will open tomorrow? Down how much more?

The irony is that in some ways, the facts in Lucent's explanation for the loss are good news for the company, and by extension, for its industry.

Lucent says its customers moved faster than it expected to the company's DWDM (dense-wave-division multiplexing) product, and faster still to its OC-192- standard products for maximizing the number of channels through that DWDM technology, by jamming more bits down existing cables.

Normally we'd call that good news, right? The company's DWDM products are taking off faster than expected; customers "get it" about the advantages of Lucent's brand of compression/multiplexing; hard work in the labs and hard missionary-selling is paying off.

Sounds pretty good to me.

But as Lucent admitted, it was caught flat-footed by the unexpected DWDM demand and "near-term manufacturing capacity and deployment constraints" got in the way. In other words, Lucent couldn't -- didn't -- make enough of the right stuff, and had to turn down, or delay, customers' orders.

So the company dissipated the market advantage its scientists and salespeople had bought for it.

Dumb.

Twenty-five points dumb? No, but in this unforgiving market, any bobble is going to get you whacked. And in today's round of Whack-a-Mole, it was Lucent that stuck its head up, so it got killed. Next?

Lucent also said they missed their customers' shift to a flatter software-purchasing cycle, to buying more or less evenly throughout the year rather than bunching-up software purchases between Christmas and New Year's.

And that gross margins took a hit, due to increased ramp-up costs.

Blah-blah-blah.

Carly come home, we need you. (But of course she won't, and you wouldn't either if you'd gotten the sweet deal Ms. Fiorina did at Hewlett-Packard (HWP). Even if she has to do those dumb commercials in front of The Garage.)

As much as a 25-point loss on my LU shares hurts, I'm worried even more about the ripple effect, as traders decide overnight to come into the market tomorrow morning driving down every stock they see as Lucent-like. Guilt by association, etc.

So tomorrow morning's watch-and-worry list now includes Nortel (NT), though Nortel has been doing fine, thanks. Once again the company today flexed its muscle by buying Promatory, a hot California DSL-implementation company, for $705 million in stock.

With Nortel's 20-point fall over the past week, NT investors thought they already had enough to worry about. Now they can look to the "Lucent Effect" for more bad news.

And it will probably include major bandwidth resellers, such as Qwest (Q). People who see fast adoption of DWDM technology -- packing more bits into existing fiber cables -- worry that the owners, aggregators and resellers of bandwidth, especially those with substantial owned physical plant, such as Q, will be hurt by slower growth, as customers deploying DWDM decide they can get by with fewer fiber lines that they thought.

And it will probably also include network-infrastructure players, such as Cisco (CSCO), Juniper Networks (JNPR), Sycamore Networks (SYCR), and so on. After all, one network-equipment company is just like another network equipment company, right?

If one hurts, they all bleed, right?

Dumb, dumb thinking . . . but probably inevitable.

I don't want to sound like a Pollyanna, or like I'm whistling past the graveyard -- this LU loss is bad, no mistake about it, and dangerous as well -- but it's important to keep it in perspective:

Lucent management screwed up.

The networking market didn't fall apart, but in fact reflected even greater strength and even greater wisdom -- and willingness to fund that wisdom -- than we'd expected.

Lucent just wasn't paying attention, and so LU holders got chopped 29% in one ugly afternoon.

Will the market understand this, behave wisely and rationally tomorrow morning, and limit the damage to Lucent -- in effect, punishing the guilty, and only the guilty?

Sure it will. And I'm a six-foot double for Robert Redford, have two Nobel prizes and several billion in the bank.

Uh-huh.

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