Telecom equipment giant

Lucent

(LU)

dropped 26.1% in preopen

Instinet

trading following its warning after the close Tuesday that fourth-quarter earnings would be just 17 to 18 cents per share, well short of the Street estimate of 27 cents, and below the year-ago 24 cents.

The company blamed weakening optical equipment margins, slowing circuit-switching sales and a rising bad debt reserve.

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ABN AMRO

and

Credit Suisse First Boston

downgraded the stock and

Merrill Lynch

cut earnings estimates, but

Goldman Sachs

said Lucent's valuation is low and advised its clients not to sell.