Updated from 1:07 p.m. EDT

Its credibility on Wall Street stripped by its failure to meet sales and earnings targets,

Lucent Technologies

(LU)

said Monday that its board had

ousted its chairman and chief executive and had brought back his predecessor to replace him until a permanent successor could be found.

The telecommunications equipment manufacturer also warned that it expected its revenues from continuing operations to fall 7% in its first fiscal quarter and those operations to break even. Analysts surveyed by

First Call/Thomson Financial

had expected Lucent to earn 23 cents a share before charges in the first quarter.

In the wake of the shakeup, the company also reported its fourth fiscal quarter earnings a day ahead of schedule, posting a 22% decline as revenue growth trailed the wildly successful networking gear industry. Still, the results were a penny better than analysts expected.

Wall Street took the latest Lucent difficulties in stride, and the company's stock, one of the nation's most widely held with 5.3 million investors, closed down 56 cents, or 2.49%, at $22.06 Monday. Still, Lucent's shares are down more than 70% from their 52-week high of $84.19, reached last December.

Schacht Is Back

Lucent's board removed Richard A. McGinn, 54, who was named chief executive in October 1997 and chairman in January 1998. He was replaced by Henry Schacht, 66, the company's chairman and chief executive from its inception in 1996 as a spinoff of

AT&T

(T) - Get Report

. Schacht will lead the search for a permanent successor.

Over the weekend, Lucent's board "determined that an immediate change in leadership was necessary," the company said Monday. "This was a difficult decision made after considerable deliberation," Franklin Thomas, a Lucent director, said in a statement on behalf of the board.

Dismissed as a drag on AT&T's earnings in the late 1980s and early 1990s, the company, now known as Lucent, roared to life by 1993. As long distance rivals hit their strides and siphoned away revenues that year, nearly a decade after a federal judge split AT&T's apart for antitrust violations, the unit contributed 17% of the company's revenues.

When AT&T prepared to spin off the telecommunications equipment maker in 1995, it named McGinn to serve under Schacht as president and chief operating officer. McGinn had climbed through AT&T's ranks, serving as co-president in 1989 of

AT&T Computer Systems

and became the sole president of that unit two years later. He also was senior vice president for strategy, sales and customer operations at

TST Recommends

AT&T Network Systems

and president and chief operating officer of AT&T Network Systems.

But under McGinn's leadership, Lucent has repeatedly missed earnings projections, each time shedding a bit of credibility on Wall Street.

"At worst, one might seriously question the managerial leadership of the company and the way it chooses to communicate with the investment community," wrote Paul Silverstein, analyst for

Robertson Stephens

, in an Oct. 11 report rating the company's shares buy. "Even after the much publicized hiring of Deborah Hopkins as the company's new CFO and the long sought-after resetting of expectations by the company following its June quarter, the company grossly overestimated its EPS for the immediately following quarter."

Silverstein's report came after Lucent warned that quarterly earnings would disappoint analysts and that expectations for 2001 were too high. It was the company's third profit warning of the year, and it sent the company's shares down shares 30%.

Lucent Beats Lowered Expectations

After the stock market closed Monday, Lucent said its net income from continuing operations fell to $600 million, or 18 cents a diluted share, in its fourth fiscal quarter, compared with income of $768 million, or 24 cents a share in the comparable quarter a year earlier. Analysts had been expecting earnings of 17 cents a share, according to the consensus estimate of those polled by

First Call/Thomson Financial

, although the analysts had lowered their estimates based on the company's profit warning earlier this month.

Revenues rose 14.6%, to $9.4 billion, from $8.2 billion in the year-earlier quarter.

Analysts said Lucent's problems are managerial and particular to the company, noting the soaring demand for network equipment to expand the Internet that has fueled rapid growth for rivals including

Nortel Networks

(NT)

.

Lucent, which is based in Murray Hill, N.J., attributed its most recent earnings shortfall on the higher reserves it established to cover potential bad debts from loans to upstart telephone companies, a 13% drop in sales of conventional telephone switching equipment and a 5% drop in sales of optical networking systems.

The company said Monday that it expected sequential improvement in operating results for each remaining quarter of its new fiscal year. Analysts were skeptical.

Schacht is "going to have to find a strong CEO, someone with good Street acceptance, and someone who knows the telecommunications industry," said James Stone, an analyst for

Stifel Nicolaus

, who rates the stock hold and whose firm has not done recent underwriting for Lucent. "Those fellows are relatively rare."