*Part 2* Why Lucent's Explanation for the Miss Leaves Much to Be Desired

Lucent (LU Quote) CEO Rich McGinn is a great corporate spokesman. Comes off as affable, believable and smart on TV. (Critics have other descriptions, but we'll leave that to your imagination.) And today on CNBC's Squawk Box (and to investors yesterday) he took the best tack in the face of a crisis: He took heat by blaming his company's problems on poor execution while insisting that the fundamentals haven't changed. The best defense (and credibility builder) for companies in these situations, after all, is to concede screwing up, and move on.

Wish I could believe him because he seems like such a nice guy. (He really does!) But for a company the size of Lucent to blame this kind of miss on one quarter's poor execution borders on ludicrous. Do you really think Lucent execs woke up one day and said "Oh, crimminy, we misjudged the market!"

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McGinn's response was that investors might have something to worry about if it hadn't been for the company's record of 15 straight quarters of earnings growth. But that's the point: Just because you beat earnings doesn't mean business is really booming. You can boost earnings (to meet expectations) by cutting expenses, by fiddling with the balance sheet (by selling off your best receivables while keeping the bad ones) and by convincing customers to take more product than they really need. In a note to clients this morning, Donaldson Lufkin & Jenrette's Eric Buck -- the only long-term Lucent bear among Wall Street analysts -- wrote: "We believe the fundamental cause of the miss was Lucent's overpromising growth and exhaustion of the options it had to artificially create demand."

Interestingly, CNBC's Joe Kernen asked McGinn how confident he was that Lucent would meet this year's earnings estimates. McGinn paused a second, went into a long-winded explanation of something that I don't recall, and never answered the question!

By the way, we won't know until after the fact how important this Lucent news is or isn't to the general market. But remember, back in '87, a preannouncement by that year's hot stock -- Gap (GPS Quote) -- was the preannouncement that shook the financial world.

Short Positions

ITT Educational, update: An item here a few months ago regarding ITT Educational Services (ESI Quote), which runs a chain of tech schools, suggested the company could run into an earnings quandary because it was pulling out all stops to make its enrollment numbers look better than they really are.

Then, yesterday, the company issued a press release touting a big increase in "new student" enrollments in the fourth quarter. Oh, but by the way, total enrollments were below expectations. Apparently, once they enroll, they drop out. (With the stock down around 35% in recent weeks, some short-sellers, fearing a stock buy back by management, have covered.)

Tyco talk: An item earlier this week regarding Tyco (TYC Quote) mentioned how analyst Harriet Baldwin of Deutsche Banc Alex. Brown had subtly changed the tone of her comments by warning that Tyco could wind up with some kind of penalty as a result of its SEC investigation. She rang yesterday to remind me that she also said that she also believes that any impact, if there indeed is a penalty, "will be measured in thousands, not millions. It will be minor, in the scheme of things," she says.

Pass the cheese, please: An item yesterday quoted some guy who goes by the handle Trenchrat berating me (and wondering about my "agenda" in Lernout & Hauspie (LHSP Quote)). His rant was followed by an item in support of genome biotech companies. That prompted reader Steve Freedman to write, "Maybe those genome companies will find a cure for guys like the Rat!"

Not in our lifetime!

Final virtual thought (or, why I love the Internet): I work from my home in New Jersey and my office in New York; the telephone exchange for my fax machine, compliments of Menlo Park, Calif.-based eFax.com (EFAX Quote), is in Chicago; my assistant (Mark Martinez) works out of his home in San Diego, and my editor, Charlotte-Anne Lucas, works from her home in San Antonio. Couldn't do that three years ago!