Lucent Beats Estimates, Sets New Structure

Fourth-quarter earnings come in at 31 cents a share, 2 cents above expectations.
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Lucent

(LU)

, the world's largest maker of telecom equipment, today posted quarterly results that surpassed Wall Street's expectations and showcased the company's success in adapting to the rapidly evolving telecommunications industry.

Lucent also said it will split into four core businesses, covering service provider networks, enterprise networks, netcare professional services and microelectronics and communication technologies. "The realignment is intended to mirror the way we are approaching customers today -- with converged network solutions," explained Lucent's chairman and chief executive, Richard McGinn.

Lucent's earnings beat the consensus estimate of analysts polled by

First Call/Thomson Financial

by 2 cents a share when excluding one-time events. For the fourth quarter ended Sept. 30, net income rose to $972 million, or 31 cents a diluted share, from $647 million, or 21 cents a share, a year earlier, excluding one-time items associated with the acquisitions of

Ascend Communications

and

Nexabit Networks

as well as the sale of an investment in

Juniper Networks

(JNPR) - Get Report

. Revenue rose to $10.58 billion from $8.57 billion a year ago.

The company's stock was soaring, up 4, or 7%, to 63 7/8.

Lately, analysts have been concerned with the issue of Lucent's rapidly rising accounts receivables. However, Mark Cavallone, an analyst with

Standard & Poor's Equity

who rates the company an accumulate, said the numbers released today assuaged his fears. The company's days sales outstanding, or DSOs, were down to 90 days from 93 days last quarter, and inventory was down to 81 days from 98 days.

In a statement, Lucent's McGinn attributed the solid fourth-quarter numbers to the company's focus on growth areas like optical networking, wireless networking, data networking and professional services.

Indeed, Gregory Geiling, telecom equipment/wireline analyst at

J.P. Morgan

, cheered Lucent's healthy revenue and earnings numbers, citing the "upside from Lucent's carrier business, including the

regional Bell operating companies and emerging telecom companies." Revenue growth in that segment was 32%, exceeding Geiling's projection of 23%.

Looking ahead to the next quarter, Geiling, who rates Lucent a buy, said, "Now Lucent has to make it through December without any Y2K challenges." But, he added, "all indications point to a clean

calendar fourth quarter," which will actually be the first in Lucent's fiscal 2000. J.P. Morgan helped underwrite Lucent's initial public offering three years ago.

Longer term, Stephen Koffler, telecom equipment/wireline analyst at

Schroder

, surmised that the greatest challenge ahead for Lucent would be "to balance the growth of next-generation networking technology with a potential decline in circuit switch-based technology," one of the company's longtime and core businesses. Koffler has an outperform rating on Lucent and his firm hasn't participated in any investment banking activity for the company.

Koffler, for one, wasn't surprised by the shift to four business groups. "They are responding to the fact that a substantial amount of redundancy exists between the parent company and some of the companies it has acquired, such as

Ascend

and

InterNetworking Systems

," he said.