Lucent Promises Red Ink Will Go

A third-quarter shortfall won't short-circuit the push for profitability, execs promise.
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Lucent (LU) insists it's still on the fast track to profitability despite the third quarter's big setback.

The company didn't specify when in fiscal 2004 it expects to return to the black, marking a sharp departure from earlier claims that 2003 would deliver Lucent from red ink. But execs at the New Jersey telecom-gear supplier also sounded a hopeful note: They said future progress on the bottom line would come from improving sales opportunities rather than continued cost cutting. Lucent has cut two-thirds of its staff during the past three years of tech spending declines.

As the company

announced last week, a sudden slide in wireless sales stuck Lucent with third-quarter losses of $254 million, or 7 cents a share, on revenue of $1.96 billion. While that narrows the networking gearmaker's loss by 7 cents from the previous quarter, the sales slipped 18% sequentially and 34% from the year-ago period.

The company saw its gross margin slim by nearly 3 percentage points to 29% due to the quarter's top line weakness. Investors had been cheered in earlier quarters at the company's ability to widen its margins, a sign that cost cuts were finally catching up to slumping sales.

In a sign of possible trouble ahead, Lucent said it was working with a large overseas wireless customer to secure payment for network equipment installed. Lucent did not disclose the name of the customer, but analysts speculate that it is India's Reliance. Lucent executives said they remained confident that they would book the payments as revenue at some future date. CEO Patricia Russo assured analysts on a conference call Wednesday that the payment issue is a "when, not if" situation.

On Tuesday, Lucent

announced a $1 billion three-year contract with

Sprint PCS

(PCS)

. While Lucent has been a primary supplier of wireless gear to Sprint from its inception, Lucent says the contract is for a new phase of network upgrades and not, as some observers had suspected, a repeat of earlier contract announcements.

The New Jersey telecom-equipment maker offered no financial outlook for the fourth quarter, and said it would deliver profits some time in the fiscal year ending Sept. 30, 2004. Analysts expect Lucent to post its 14th straight loss on $2.2 billion in sales for the fourth quarter of 2003.

On Wednesday, Lucent slipped a penny to $1.90.