Networking gear manufacturer Lucent Technologies Inc. lowered its financial guidance for 2006 on Friday, reporting that its previous projection of single-digit revenue growth for the fiscal year will likely be replaced by flat earnings performance.
The Murray Hill, N.J., company said that it expects revenues for its first quarter of fiscal 2006, which ended Dec. 31, 2005, to reach roughly $2.05 billion, compared with $2.43 billion for the prior quarter, which ended Sept. 30, 2005. Lucent indicated that the decline in income was spurred largely by fewer sales in the United States and China than the company had originally expected.
Despite stumbling out of the blocks in 2006, company executives said they expect to see "significantly higher" revenues during the second half of its fiscal year.
"As a result of the first-quarter performance and a review of our expectations for the remainder of the year, we believe it is prudent to change our full-year revenue guidance at this time," Lucent Chairman and CEO Patricia Russo said in a statement. "While we are clearly disappointed, we consider this to be a temporary setback to the progress we have made, and we are confident that our performance will be much stronger for the remainder of the year."
In defense of the improving outlook for the second half of 2006, Russo said that Lucents customers are buying its IMS (IP Multimedia Subsystem) integrated networking products and ordering enough third-generation mobile infrastructure gear to merit the improving projection. She also said that Lucent will continue to analyze its internal cost structure.
One of the negative factors weighing in on Lucents downgraded outlook was its loss in federal bankruptcy court last month in a case involving defunct broadband Internet service provider Winstar Communications. The ISP filed a $10 billion suit against Lucent in 2001 based on claims that the company forced Winstar into Chapter 11 bankruptcy by breaching a contract to build the firms global communications network.
After the suit was amended by Winstar trustees, a federal judge ordered Lucent to pay out $188 million related to a credit line it had been provided by Winstar, and $55 million for the contract violation and other costs. Despite plans to appeal the ruling, Lucent said at the time of the verdict in mid-December that it would take a $300 million charge in its first fiscal quarter of 2006 as a result of the courts decision.
In related news, Lucent announced that Chief Financial Officer Frank DAmelio has added the title of chief operating officer and will serve in both roles until a successor is named to the CFO post. Under the new position, DAmelio, 48, will oversee Lucents sales operations, product teams, services business, corporate supply chain, IT operations and labor relations, and will continue to report directly to Russo.
The executive, who was named as Lucents CFO in May 2001, has held a variety of senior financial and operational positions at the firm and rival AT&T, including stints in charge of Lucents largest product units from 1999 until 2001. At AT&T, DAmelio served as controller of the companys Network Systems business unit before being named as CFO of the group in 1996. When Lucent was formed in 1996, DAmelio joined the company as CFO of Lucents Network Systems group.
Russo said that market conditions convinced the firm to re-create its COO position.
"Today our industry is in the midst of a dramatic transformation as the boundaries between the telecom, media and Internet worlds continue to blur," Russo said in a statement. "Given these changing market dynamics, I have concluded the time is right for us once again to have a chief operating officer."
DAmelio also serves on the board of directors of Humana Inc. and the national advisory board of JP MorganChase.
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