reticence to talk suggests to some that an earnings disappointment looms, one longtime naysayer is looking beyond the immediate horizon and seeing reasons to be bullish.
analyst Truc Do lifted his yearlong hold on Lucent to a buy, citing exceptional demand from carriers for new optical-transport equipment. (Wit SoundView has no banking ties to Lucent.) Do figures Lucent's fiscal second quarter, ending March 31, will be weak, if not a disappointment. But that should mark the end of a troublesome adjustment period as the company shifts its efforts to keep up with the demand for new products.
Do has been one of Lucent's most stalwart bears, and often has been critical of Lucent's inability to keep abreast of growing demands for wireless and high-speed Internet infrastructure equipment. Do maintained his hold even as Lucent reached an all-time high of 84 in December.
Of course, in January Lucent predicted
weak first-quarter earnings, and its stock plunged.
Now Do, after talking to carriers including
in the last several days, has decided that the optical tide has come in.
"Carriers were telling me last week they are buying anything they could get their hands on from the vendors. And there is no one vendor out there that can keep up with this demand," says Do, who has a strong buy on Lucent competitors
Lucent, meanwhile, has been uncharacteristically mum. Monday, after a presentation to investors at the
Merrill Lynch Global Telecom
conference at the
in New York, Ben Verwaayen, Lucent's vice chairman and head of overseas business development, refused to answer questions about how the company stood for the current quarter. Verwaayen said it was the quiet period before the earnings report. The quiet period actually begins Wednesday.
For the record, the company says it's sticking to the guidance it gave in January, when it said it expected to have a 12% to 15% increase in revenue over the same quarter a year ago, which is less than half of the 33% increase at that time. And Lucent estimated then that earnings would increase 25% to 35%, far less than the 99% growth from March 1998 to March 1999.
Analysts expect the company will earn 22 cents a share this quarter, according to
They say the company is being extremely cautious about projections because of the fallout from its January earnings warning. You'll recall that two months ago, Lucent warned that it would fail to meet consensus earnings for the first time in its three-year history. The news triggered a two-day, 26% selloff, and the company's stock only recently began to recover some of its value. By contrast, Nortel is up 37% and
is up 227% since Lucent's earnings warning.
The widely held belief is that Lucent will find a way to get close or even make the March quarter numbers, though
analyst Michael Ching says the rest of the year is more important because it'll show whether Lucent has made necessary changes.
But many investors may not be able to stomach another bad quarter from Lucent, and the stock price reflects some of the concern about whether it will meet the Street's estimates. Despite Do's upgrade, Lucent was down 1 9/16 Monday to close at 66 7/16.
Now, Lucent's March quarter is shaping up as a test of will for many investors. Do says if people can hang on for three to six months, they may be rewarded.
"If the stock takes a big tumble because of the March quarter, I can see myself putting a strong buy there and riding the curve up from the bottom," says Do.
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