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LUCENT SWINGS TO PROFIT

21 Jan 04. THE WALL STREET JOURNAL reported that, putting 13 consecutive quarters of losses further behind it, Lucent Technologies Inc. reported a profit for the second quarter in a row Wednesday and said it expects a profitable fiscal year, excluding possible expenses related to a settlement of shareholder lawsuits.

The swing to a profit indicates that the market is stabilizing after a protracted decline, said the telecommunications-equipment maker, based in Murray Hill, N.J. Still, the company predicted that revenue for the fiscal year will remain stable or edge up only slightly from the $8.5 billion reported in fiscal 2003.

For the fiscal first quarter ended Dec. 31, Lucent reported net income of $338 million, or seven cents a share, compared with a loss of $264 million, or 11 cents, a year earlier, when operating losses and the cost of repurchasing some securities weighed down results.

Revenue rose 9% to $2.26 billion from $2.08 billion a year earlier, led by a 32% increase in sales of gear for wireless phone networks, which is Lucent’s largest source of revenue. The company’s sales of landline phone network equipment dropped 6.9%, a result some analysts found disappointing. Analysts said the company’s restructuring efforts paid off with extraordinary improvement in gross margins, which expanded to 40.7% from 21.9% in the year earlier period.

“It looks like the change is margin is sustainable,” said Susan Kalla, an analyst with Friedman Billings Ramsey & Co. in New York.

Lucent joined Motorola Inc. as the second huge telecommunications equipment maker in less than 24 hours to report results that were better than analysts expected.

“We’ve done an awful lot as the industry went through radical changes to get our costs in line,” Chairman and Chief Executive Patricia Russo said in an interview. “We will continue to manage that, but will be intensely focused on growing revenue.”

Ms. Russo said she is “cautiously optimistic” that spending by Lucent’s phone company customers will stabilize or increase. “We are very encouraged by some of the things we’ve seen,” she said. But she added that it makes sense to remain cautious.

Chief Financial Officer Frank D’Amelio said there are likely to be “ups and downs” in the company’s bottom line over the course of the year but that isn’t expected to change an overall profitable result, excluding the legal settlement expenses. In March, Lucent promised to issue warrants to settle more than 50 shareholder lawsuits related to the decline in the company’s once top-performing stock. The value of those warrants, which is deducted from profits, has increased as Lucent’s stock has rallied lately.

Investors, who have been optimistic about many telecommunications stocks recently, had driven Lucent’s shares up 67% since Dec. 31. Profit-taking and disappointment that Lucent didn’t issue a rosier revenue forecast helped knock shares down 21 cents to $4.54 on the New York Stock Exchange Wednesday.

Lucent’s profit in the first fiscal quarter came with increases in short-term debt and a decrease in cash on hand. The company ended the quarter with $4.3 billion in cash and short-term investments, down $230 million from the end of the previous quarter. Mr. D’Amelio said the payment of year-end bonuses to employees accounted for most of the decline. Lucent’s short-term debt jumped to $917 million from $389 million three months earlier as the company reclassified some convertible preferred stock as short-term debt. The company’s total long and short term debt was $5.34 billion, compared with $4.83 billion at the end of the fourth fiscal quarter.

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