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Lucent Stock Tumbles on Profit Warning

Telecom: Shares plunge 28% after firm says it expects earnings for fiscal first quarter to miss estimates.

January 07, 2000|ELIZABETH DOUGLASS | TIMES STAFF WRITER

Surprised investors sent Lucent Technologies stock plummeting 28% in Thursday trading after the world's largest phone equipment maker warned that it would post lower profit and flat sales for its fiscal first quarter.

Lucent shares, which closed down $4 to $69 on Thursday in regular trading on the New York Stock Exchange, sank in after-hours trading to $52, down $20.38 from Wednesday's close of $72.38.

The sharp drop in Lucent shares, which is the nation's most widely owned stock and was one of many highflying telecommunications stocks last year, may trigger further selling today for technology stocks.

Some of that reaction started Thursday when Lucent's rival Nortel Networks plunged in after-hours trading, sliding $12.88 to $77 on the NYSE.

Cisco Systems' shares, which fell $1.69 to $100 in regular Nasdaq trading, were quoted as falling to $94.25 in after-hours activity. But both Cisco and Nortel reiterated that they would meet their current earnings forecasts.

"This means some terrible things for some related [telecommunications stocks]," said Mark Roberts, managing director of equities at First Union Securities Inc. "But any severe downdraft that hits telecom equipment stocks might be a buying opportunity, because the fundamental demand for equipment has not changed."

Lucent, based in Murray Hill, N.J., announced shortly after the stock market closed that it will have lower-than-anticipated profit for its first quarter, which ended Dec. 31. The company said preliminary results show that its earnings per share could range from 36 cents to 39 cents, compared with estimates from many analysts of 54 cents per share. In the year-earlier quarter the company earned 48 cents.

"We're looking at them coming up 30% short," said Raj Mehta, a senior analyst at RHK, a research firm based in South San Francisco. "I'm sure a lot of people were caught off guard by this."

Actual results will be reported on Jan. 20, Lucent said.

The company attributed the profit dip to several factors, including a production capacity squeeze, shortages of its new products (including equipment for fiber optic networks) and reduced buying from phone companies and corporations partly because of uncertainties about the Y2K computer bug.

"We are clearly disappointed with the results for the quarter," said Chairman and Chief Executive Richard McGinn.

Lucent makes all manner of phone switches and the software that runs them for wireless, Internet and phone companies.

"This is not an issue of demand, it really is an issue of execution in the quarter," said Lynn Newman, a Lucent spokeswoman. "This is a bump in the road."

Lucent said it expects sales for its first quarter to be between $9.8 billion and $9.9 billion--about flat from a year earlier--but a great disappointment for some analysts who were forecasting sales of $11 billion.

Lucent expects its sales to pick up by the end of March and to return to outpacing the networking communications market.

The company said it expects fiscal second-quarter sales growth of 12% to 15% and earnings growth of 25% to 35%, both compared with year-ago results.

The company said it expects stronger growth in the second half of fiscal 2000 as its "newest optical, network access and semiconductor products ramp up for full volume and deployment."

In fiscal 1999, which ended Sept. 30, Lucent had a record year, with its revenue jumping 20% to $38.3 billion and net income surging 46% to $3.8 billion, or $1.22 per share.

So far, analysts seem inclined to chalk up the earnings miss to factors that will be smoothed out in future quarters.

"In a nutshell, this is a combination of sales pressure, a shift in buying patterns and Y2K," said analyst Mehta. "Going forward, we're looking at a massive build-out in telecommunications in the next three to five years."

Times wire services were used in compiling this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Sudden Static

Production snags and delayed orders forced Lucent to warn Thursday of lower profit and flat sales for its just-ended quarter'and its stock fell further in after-hours trading. Daily closes and latest since Dec. 1:

Thursday

after-hours trading:

$52.00,

down $20.38

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