Analysts said Lucent Technologies took the right steps to stem losses after the networking giant announced plans to cut 16,000 jobs and slash spending by $2 billion a year.
While turning around the culture at the troubled company will cause suffering, observers said Lucents new optical networking products show promise. "Its obviously going to be painful, but those are smart business moves, and Lucent definitely has brighter days ahead," said Chris Nicoll, vice president at Current Analysis.
Lucents seven-point restructuring plan calls for closing two of its four manufacturing plants, outsourcing most of those 6,000 jobs and cutting another 10,000 jobs in sales, marketing and administration. Spinning off Agere Systems, its microelectronics division, will lower the head count by another 16,500, leaving Lucent with about 90,000 employees, compared with roughly 123,000 employees today.
Lucent, the equipment maker formerly known as Bell Labs and a part of AT&T, lost $1.02 billion last quarter. Its old news that Lucent was later than its rivals in jumping into the high-speed optical equipment market. But last week Chief Executive Henry Schacht also blamed steep discounting and vendor financing for the companys troubles.
To meet quarterly revenue targets, Lucent salespeople would call customers in the last few days of each quarter and offer discounts if the customers would complete the sales for that quarters books.
All vendors do some end-of-quarter discounting, but the Lucent sales force gave top management the impression that traditional telephone equipment was still moving fast, so it stockpiled inventory that gathered dust, while missing the product cycle on high-end optical equipment, said Bill Lesieur at Technology Business Research.
Schacht acknowledged as much in an earnings conference call. "Our inventory grew on us at unacceptable levels. Were improving, but were not out of the woods."
Lucent also got in trouble by financing deals with competitive local exchange carriers that then ran out of money and canceled orders or delayed payment. Customers currently owe Lucent $1.8 billion. As a result, Lucent will focus more on incumbent carriers with stable track records and reputations for paying in cash and on time.
Now the key question is whether Lucent can bring products to the high-growth optical market fast enough to make inroads against Nortel Networks, Cisco Systems and other strong players.