Out of the blue,
sees growth again. And despite the odds, it seems like that vision might not be a mirage.
Breaking from the pack of visibility-impaired telecom outfits, Lucent on Tuesday projected 10% to 15% sequential revenue growth in the current quarter. The strong forecast was utterly unexpected, given that Lucent has spent the last year slashing costs rather than expanding its business; sales plunged by more than half in the fiscal year that ended in September. Upping the stakes, the current fiscal second quarter is typically one of Lucent's weakest.
Wall Street, still healing from its last rash of Lucent-inflicted burns, isn't yet taking the big telecom gearmaker at its word. Analysts note the contrast with arch-rival
, which continues to forecast falling revenue in the current quarter.
But observers say Lucent's projections are far from outlandish, considering the strength of its deal pipeline and Lucent's surprisingly strong liquidity. Lending a bit of support to the long view, Lucent supplier
on Wednesday offered a bullish if vague
second-half demand forecast. Lucent shares slipped a dime Wednesday to $6.85.
Turning It Around
"Their financial situation is stablilzed, consolidation has made the Baby Bells the last men standing, and that's their prime customer," says Edward Jones analyst Dave Powers, who has a hold rating on Lucent. "You've got to give them credit in some respect."
Lucent's bullish forecast Tuesday marked its first positive financial guidance since the wheels came off its go-go-growth bandwagon two years ago. Back then, a massive earnings shortfall set off a series of executive shake-ups, accounting blunders and regulatory inquiries that torched Rich McGinn's temple of shareholder value. Meanwhile, a distracted management team failed to keep Lucent in the game on key product cycles, eroding the core business just as the telecom industry fell into a deep funk.
Note: Current-year figure is projected.
A strong second quarter would certainly buck historical trends, not to mention the industry's recent torpor. Over the last five years, Lucent's fiscal second-quarter sales have fallen an average of 14% from first-quarter levels, as equipment orders surged at year-end and then were slow to resume.
So what's up Lucent's sleeve? Three things, perhaps: a pipeline full of big ticket orders, a high-yield or convertible bond offering should the timing work, and more asset sales.
Though the company hasn't announced it yet, it has all but sealed a estimated three-year $1 billion deal with
for metro optical gear. The contract is a major win for Lucent's new coddle-the-telco-survivors business strategy, and it gives the product, dubbed EON, a hearty endorsement as other local phone giants shop around for cost-effective upgrades to their old-line networks.
There's also a smaller unannounced deal with the No. 2 Baby Bell
for Internet protocol phone gear. Called IP Centrex, the next-generation office switchboard gear will allow SBC to offer corporations voice-over-IP service from 200 phone network hubs. In July, Lucent management shared the news of the deal (including the terms -- $400 million over five years) with employees, but has yet to tell the rest of the world.
And thanks to the continued wireless network construction by
and Verizon, Lucent is at the early stages of the $1 billion and $3 billion multiyear contracts.
And just a year after Wall Street fretted that Chapter 11 was in its future, the company's funding sources are practically gushing forth. That should enable Lucent to continue to pursue its focus-on-the-big-customers strategy.
Observers note that Lucent is eligible to sell up to $1.75 billon in unsecured debt at any time under a 1999 shelf filing. This has some wags predicting that a junk bond may soon be in the offing. Lucent declined to comment on any imminent deal, saying bond offerings are among the options the company could use to raise funds.
"It would make sense, if the opportunity presented itself, for them to raise some money," says Lehman Brothers analyst Steve Levy, who has a strong buy on the stock and whose firm has no underwriting ties to Lucent. "Sort of like taking the cookie while the cookie jar is open."
Even if the bond markets don't look favorable, Lucent could once more hike down the trusty old asset-sale path. To date, Lucent has sold off about $5.5 billion worth of assets as it scrambles to shrink its operations and raise cash.
To that end, Lucent is close to finalizing a $300 million deal to sell its Kenan billing and customer support business, a venture it paid a whopping $1.5 billion for three years ago. Lucent also has its optical manufacturing plant in North Andover, Mass., on the block, and some two dozen manufacturing units also could fall under the outsourcing knife.
Some Lucent observers even suggest that the hallowed Bell Labs may have a place outside the company. Though most people don't expect Bell Labs to go the way of the innovative but low-growth Xerox PARC, it's not inconceivable that the research effort could take a pruning, considering Lucent's laserlike bottom line focus.