( LU) lost some luster after delivering
a mixed quarter Tuesday morning.
Shares of the Murray Hill, N.J., tech giant dropped 3% following an uninspiring progress report. Wireless growth stalled and Asian orders declined, but gross margins ticked up and network services revenue grew in the fiscal third quarter ended in June.
Wall Street wasn't bowled over by the performance. Optimists came away from the earnings conference call still convinced that Lucent is showing progress on its road to robustness. But pessimists found plenty of nits to pick and are growing impatient with the telecom equipment maker's failure to break out of its rut.
Sales for the quarter were flat with the prior period, and the company left unchanged its full-year guidance for single-digit revenue growth. The ho-hum update was compounded by Lucent's 2% sequential dip in wireless infrastructure sales.
Lucent's strength in wireless has helped win over investors who are eager to see the company emerge as a powerhouse in that fast-growing industry. So it's easy to see why the quarter's slight downtick in wireless sales was a big letdown for many observers who were banking on the company's mobility business as its key to any huge success.
But while the weakness in wireless came as a surprise, some analysts say the market may be overreacting. They say a bit of breath-catching after a 14% sales surge over the past year isn't unwarranted.
"The wireless slowdown is sequential off a monster March quarter," says Lehman Brothers analyst Steve Levy. "I wouldn't read much more into it. I believe the wireless business will be up next quarter." Levy rates Lucent a buy, and Lehman Brothers or its affiliates hold more than a 1% stake in Lucent.
Lucent was able to widen gross margins to 45% from 43% a year ago, thanks largely to strong U.S. sales of new optical gear. Still, those orders weren't likely to repeat in coming quarters. Looking ahead, CFO Frank D'Amelio stuck with prior guidance calling for gross margins in the low 40-percent range.
The company has been trying to lower its costs through employee cuts and system streamlining. In the past year, Lucent has cut 1,000 workers, bringing its total head count to 30,800.
On the manufacturing front, Lucent says it is reducing its outsourcing partners to eliminate redundancies. The simplification strategy has been one of CEO Pat Russo's leading causes since she took over in 2002.
In May, the company
out of the fold that once numbered five. Insiders say that Lucent will open the fiscal year in September with only two contract manufactures, namely
Lucent shares were down 11 cents to $3.02, while rival
( NT) was up 2 cents to $2.77 in midday trading.