The telecom-gear maker has lost $5.5 billion since the start of fiscal 2001. It insists it will return to profitability by 2003, but analysts see losses of $2 billion in 2002 and $750 million in 2003. Here's why:
CAPITAL SPENDING DECLINES
The telephone companies that purchase Lucent (LU) gear have too much debt and too much network capacity, so they are slashing costs. Industry spending on equipment, which is key to profitability, is expected to drop 11% in 2002, and 3% in 2003.
PRICES ARE FALLING
The price of telecom equipment is dropping by 30% a year. That's one major reason why Lucent's revenue is expected to plummet 30% in 2002, to $14.8 billion. And gross margins, which peaked at 40% in 2000, fell to 13% last year.
COST-CUTTING EASES OFF
Lucent has slashed its workforce to 62,000 employees, down from a previous 106,000. Furthermore, it cut capital outlays from $1.4 billion in 2001 to $750 million in 2002. Additional cost cuts will be tough without losing key talent.
CREDIT RATING AT RISK
Lucent's credit rating is already in the middle of the junk-bond tier. Several credit rating agencies still have a negative outlook on the company's debt. If it doesn't return to profitability soon, they could lower their ratings again, increasing Lucent's borrowing costs.