Investors are finding little warmth in the spotlight Lucent ( LU) has trained on the coming year. The telecom equipment giant
hit fiscal fourth-quarter financial targets Wednesday despite a quicker-than-expected drop in demand for wireless networking gear. Looking ahead, the company outlined a long list of contingencies that, when boiled down, should amount to 5% sales growth over the next 12 months. Lucent executives told analysts on a conference call Wednesday that they see growth ahead in all segments of the business. But the pace of that growth will slow in its big wireless unit, which has been the source of much good news about Lucent lately. Now Verizon ( VZ) happens to be finishing its network upgrade effort, and there's no single major customer ready to pick up the slack. Since Verizon represents most of the wireless business at Lucent, most investors were clued in to the end of the spending cycle and the impending slump. One pleasant surprise was Lucent forecast that wireline sales will grow at the same pace in fiscal 2006. The company says sliding sales of conventional telecom gear will be balanced by an increase in optical and next generation equipment as telcos move to more of an Internet protocol infrastructure. "The expectation was that you'd see them take the wireless business down a little," says one Wall Street analyst, with a neutral rating and who asked not to be named. "But I don't think many people were expecting them to keep the wireline side flat." But not everyone was seeing the glass as full as Lucent hoped. Citing decelerating wireless business and little evidence that the wireline demand was going anywhere but down, JP Morgan Chase analyst Ehud Gelblum slapped a sell rating on the stock. Gelblum says stiffer headwinds like pricing pressure and a $300 million decline in pension benefits should erode margins in the current fiscal year. Overall, Lucent watchers say the upshot of the conference call is that the same old trends are still holding the tech titan in its rut. Though gross margins improved a point to 46% in the last quarter, Lucent predicts a narrowing to about 42% for the current fiscal year.
Lucent also expects to keep swinging the ax as cost cutting is still on the march. Company executives say they will remove about 2,000 workers in 2006. But offsetting new hires overseas and in some growth areas should net out to roughly 1,000 fewer people on the payroll by fiscal year-end. Last year, Lucent cut about 1,300 people leaving it with a headcount of 30,500 at the end of September. Lucent shares fell 12 cents, or 4% to $2.99. Meanwhile, gearmaking rival Nortel ( NT) was up 2 cents to $3.41.