Lucent costs cuts go too far, analysts fear

Lucent chairman Henry Schacht has announced another tranche of revenue generating measures, but analysts say the company must focus on the long term too.

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By  Mark Sutton Published  July 25, 2001

Lucent has announced a number of measures to save cash, as chief executive and chairman Henry Schacht warned shareholders not to expect a dividend this quarter. Job losses at the troubled telecommunications equipment manufacturer are expected to hit the 20,000 mark, including 25-30% of senior management. The company lost $3.25 billion last quarter.

Among the cost-cutting measures on the table are plans to lease manufacturing assets to Celestica, the selling-off of the optical fibre business and a property financing deal. Schacht said that the moves are aimed at improving business performance, creating a smaller company that is focused on optical data networking services.

Analysts however, fear that Lucent may be throwing the baby out with the bathwater: “Lucent is in danger of selling off its assets and ending up with nothing to help it in the long term,” said Mark Blowers, senior research analyst at Butler Group. “This strategy might raise money in the short term, but the company needs to focus on revenue from sales for the sake of future health. The figures are lacking in creditability-it needs to be coming up with the figures if it wants us to believe that sometime in 2002 it will be profitable.”

Although redundancies and rationalisation of product line is hoped to save $2 billion, the company will still take a one-time charge of $7-9 billion to cover job losses next quarter. A proposed merger with Alcatel fell through recently as executives failed to reach an agreement on the structure of a merged company.

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