Updated from 8:33 a.m. EDT
plunged 20% Thursday after the company warned of slower growth in coming months even as it reported that its earnings for its latest quarter rose 30% and beat estimates by a penny.
Lucent reduced its earnings and profit forecasts for the next two quarters because of a faster-than-expected decline in sales of its high-margin circuit-switching products.
Lucent Technologies fell 10 5/16, or 16%, to close down at 54 3/16.
The company also said it was spinning off its microelectronics unit and plans an initial public offering for the business which, with $4 billion in revenue, is the world's largest communications semiconductor company. The decision may ultimately please investors and analysts because as a stand-alone company it won't be bogged down by the lower-growth office equipment division and could command a higher valuation.
In March, the company announced it was
spinning off its communications equipment division.
"With today's announcement of our spinoff of the microelectronics business, we will create two vibrant new companies positioned to lead in the Internet infrastructure and communications semiconductors markets," said Richard McGinn, Lucent's chairman and chief executive officer, in a statement. "The fact is, we are dividing Lucent to accelerate growth."
Lucent attributed the rise in its earnings for its third fiscal quarter to strong growth in its data networking, wireless and optical fiber businesses. The company said its pro forma earnings from continuing operations totaled $1.007 billion, or 30 cents a share, compared with $732 million, or 23 cents a share, in the year-earlier period. Pro forma revenue from continuing operations for the quarter increased 20% to $8.713 billion vs. $7.245 billion in the 1999 third fiscal quarter.
Analysts were expecting Murray Hill, N.J.-based Lucent to earn 29 cents a share, according to
First Call/Thomson Financial
On an as-reported basis, revenue from continuing operations increased about 18% to $8.713 billion this quarter compared to $7.403 billion in the year-ago quarter. After charges and amortization and a $287 million net loss from discontinued operations, Lucent's as-reported results for the quarter were a net loss of $301 million, or 9 cents per share, compared with net income of $763 million, or 24 cents per share, in the year-ago quarter.
The company warned of lower growth ahead, saying that pro forma earnings per share in the fourth quarter from continuing operations will be roughly in line with revenue growth, about 15%. The fourth-quarter expectations reflect a faster-than-expected decline in circuit switching sales, which won't be immediately offset by sales of new products.
While the company expects revenue from continuing operations to grow 20% in the first fiscal quarter of 2001, it anticipates a 15% decline in pro forma earnings per share for the same period, because of a shift from higher margin switching products to newer products with lower margins associated with the ramp-up of new technology, the company said.
While investors clearly were turned off by the warning, analysts remained calm. "The problems in the fourth quarter and first quarter are short term in nature, and should fade away," said Ari Bensinger, an analyst at
Standard & Poors Equity Group
He said the company still plans to post bottom-line earnings-per-share growth of 20% for the full fiscal year 2001. However, he did lower his full-year fiscal 2000 EPS estimate to $1.19 from $1.30.
"This isn't a surprise," he said of the fact that the company's earnings will slow due to the transition from the old circuit switches to the lower-margin new products. "The company and the Street have expected this for some time. But customers seem to have taken their time switching. It's a little-longer-than-expected transition."
He estimated that the spinoff of the microelectronics unit could add $10 to Lucent's share price. "We believe the weakness here presents a buying opportunity. For 2001 you have a healthy 20% EPS growth with a bellwether stock." Bensinger kept his buy rating on Lucent, and his firm does not perform underwriting.