Headline: Feeling the Burn: Lucent, Other Telecoms in Struggle for Survival

[Another overview article, this one focusing on Lucent. So tell me, what the @#$%@! was Lucent doing spending millions on a GOLF COURSE?]

Source: ABC News, 31 July 2001

URL: http://abcnews.go.com/sections/business/DailyNews/lucent010731.html

Residents all over the northeastern United States reported seeing a mysterious giant fireball in the sky that exploded as it fell to Earth last week. It wasn't Lucent Technologies, but it could have been.

On July 24, the prominent telecommunications equipment maker, headquartered in Murray Hill, N.J., announced a quarterly loss of $3.25 billion, the cutting of up to 20,000 jobs — for a total of about 40,000 this year — and the elimination of its dividend.

And that was only the latest part of a spectacular flameout in 2001, as the once-soaring company struggles to remain airborne. Lucent has registered huge losses, fired tens of thousands of employees and unloaded divisions in a near-fire sale.

As a result, Lucent's widely held stock, which reached a high of nearly $78 in December 1999, is now hovering around $7. Far removed from being a market darling, the main question about Lucent now is whether the company can come back at all.

But Some Analysts Are Sanguine

Lucent's problem? Huge investments and spending, as well as loans extended to clients, are weighing it down now that the Internet-fueled telecommunications boom has sputtered. The company is also taking a $9 billion charge against earnings this quarter to cover investment losses and carries $3.7 billion in debt.

In an attempt to reduce this burden, Lucent just unloaded its fiber-optics business to Japanese company Furukawa for $2.75 billion. That is perhaps half of the figure Lucent had originally hoped to get.

Lucent even announced the $51 million sale of its company golf course in New Jersey this week — having spent $40 million purchasing and developing the links over the last three years.

But it also announced a delay in the initial public offering of subsidiary chip-maker Agere, a spin-off founded essentially to relieve Lucent of its crushing debt load.

Still, despite all the bad news, some Wall Street analysts are fairly sanguine about Lucent's prospects. The stock rose slightly late last week, thanks in part to a favorable research report by analyst Steven Levy of investment bank Lehman Brothers in New York, who upgraded his rating of the stock from "neutral" to "strong buy."

"The fact that Lucent was able to produce almost the same revenues as it did in the March quarter … was particularly encouraging," wrote Levy. In his view, the company has "share price appreciation potential that is at least 100 percent from current levels." Still, that might be only a minor comfort to those who bought the stock closer to its peak.

Layoffs Will Cut Costs

Last week's layoffs were hardly the first step Lucent has taken in its search for profitability. The company has been slashing its workforce since late last year in an attempt to cut its burn rate. The 40,000 jobs cut in 2001 is the biggest single-year reduction since Lucent's former parent company, AT&T, cut roughly the same number in 1996.

According to Lucent spokesman John Skalko, the company had 155,000 employees at its peak, in July of last year. With the layoffs — which include jobs in divisions the company has sold — he estimates Lucent could be down to 56,000 by the end of 2001.

Some observers say it is a necessary move. "I think it's prudent," says Paul Sagawa, an analyst at Sanford C. Bernstein in New York who covers telecommunications equipment makers. Additionally, the company seems to have stopped looking for a buyer. French telecommunications firm Alcatel was close to a merger with Lucent in May, but the deal failed in a dispute over control of the proposed new company.

"Who's going to buy them?" asks Sagawa, noting it would take a large, diverse company — along the lines of General Electric, say — to both afford Lucent's assets and take advantage of them. Instead, he feels Lucent should concentrate on what is now its core business, selling fixed-line switches and wireless equipment to big phone companies: "Now they just have to execute what they said they were going to do."

And Lucent still has valuable assets like its famous research center, Bell Labs. Chief executive Henry Schacht has promised Lucent will "maintain the core" of Bell Labs in its efforts to carry on as a productive "research and development house."

The problems Lucent is facing are hardly unique, however. So far, 2001 is shaping up as a year of historically bad magnitude in the industry, and Lucent's layoffs and losses were just part of a week of carnage among telecommunications equipment makers and their employees which may have marked its nadir.

JDS Uniphase, for instance, announced a quarterly loss of $7.9 billion and 7,000 job cuts in addition to 9,000 layoffs made earlier in the year, on top of a $44.8 billion write-off based on the lower value of companies it has acquired — one of the biggest in corporate history. Nortel announced a $19.4 billion quarterly loss on July 19 and Corning Inc. announced a $4.76 billion loss, based on two large write-offs (although it reported increased sales).

"We're in a situation of survival mode," says Sagawa, who says he does not expect an upturn in profits for the big telecom equipment makers until 2003. He adds: "None of them are generating any cash, and they're carrying tremendous debt. You can either generate cash or stop spending."

So for now, the telecom equipment makers are trying to control their burn rates, before they simply burn out and crash.

-- Andre Weltman (aweltman@state.pa.us), July 31, 2001

Answers

http://www.theregister.co.uk/content/5/20729.html

In April, a technician threatened to blow up a Lucent plant in Massachusetts with a fertiliser bomb after layoffs were announced at the facility. The incident wasn't just a one-off either. Earlier this month Reuters reported that a SWAT team had to be called in to a Lucent facility in Massachusetts after another sacked worker threatened employees.

-- spider (spider@web.com), July 31, 2001.

July 29, 2001, 3:18PM

Lucent pinching pennies to keep the lights on Associated Press

MURRAY HILL, N.J. -- The lights are still on at Lucent Technologies headquarters, but it's only one fluorescent bulb per cubicle instead of the usual four these days.

The free coffee and water coolers are gone too, and so is the overtime. The once-manicured lawn on the expansive headquarters could use a trim, but there's no money to pay the gardener.

Since last year, 19,000 employees have left the telecommunications giant, and the company announced a $3.25 billion loss and cuts of 15,000 to 20,000 more positions last week.

"I'm gone," said Dennis Lane, an electronic device mechanic who expects to be given his pink slip this week.

An added indignity to a lost job is the declining value of Lucent stock, much of which supports employees' retirement accounts.

Lane said he wore a shirt with a Lucent logo to a department store last Christmas and wasn't waited on. He believes he was ignored because "they thought that I was part of their losing their money on the stock market."

Lucent hasn't disclosed where the latest job cuts are from, but New Jersey has more Lucent employees than any other state and has lost the most jobs so far -- 4,000 of its 16,000 workers from a year ago, spokesman Bill Price said.

Illinois has lost 3,000 jobs and Massachusetts about 1,500, the company said.

In order to cut $2 billion in expenses by 2002, the company has trimmed what was once considered a necessity: the information technology budget, including new computers and laptops, has been cut by 80 percent.

Virtually all corporate travel and conference center rentals are banned, spokesman John Skalko said. Employees with both cellular telephones and pagers have been asked to give up one of them; Skalko gave up his cellular phone and uses his own.

Employees with two business phone lines at home have been asked to use just one. Office telephone numbers aren't being changed from one office to another, to save the $40 fee.

"It's necessary for us to make sure that every dollar we spend on expenses is a necessary dollar to spend," Skalko said.

That means no more coffee, bottled spring water and breakfast rolls at company meetings. Employees who want to eat can use the cafeteria.

"These are tough times and we're in a fight," Skalko said. "It's a tough fight."

The effect of the cutbacks on the three affluent towns surrounding Lucent -- New Providence, Summit and Berkeley Heights -- is unclear. Some lunch spots report slower business.

Pamela Steiner, promotions director of the Suburban Chambers of Commerce for the three towns, expects the effect to be gradual.

"Many of the people live in our area. They're cutting out an income," she said. "That hurts businesses in general in that people then stop their buying."

http://www.chron.com/cs/CDA/printstory.hts/business/983623

-- Martin Thompson (mthom1927@aol.com), July 31, 2001.