Q&A: "There Are No Silver Bullets Available"

Lucent Technologies Inc. (LU ) is counting on the steady hand of Henry Schacht. He ran Lucent for two years after it was spun off from AT&T (T ) in 1996. When the board fired his protege Rich McGinn last year, Schacht agreed to return as CEO and chairman while directors search for a successor. He talked with Telecommunications Editor Steve Rosenbush at Lucent headquarters in Murray Hill, N.J.

Q: What went wrong with Lucent?

A: In retrospect, we tried to grow the company too fast. The decision to concentrate more on the [competitive local-phone companies] proved to be ill-fated. The 11 [new-business] units did not produce the new products that were hoped for, but developed an expense structure that was unsustainable. We made a conscious decision to offer discounts [to boost sales]. When that didn't work, we had a hole.

Q: What changes have you made?

A: No. 1, we slowed down the anticipated rate of growth. We then took our 11 business units and worked them back to [four] product-development units. We're seeing progress on all seven points of our restructuring plan. And we're focusing Lucent on the needs of service providers for broadband and wireless infrastructure.

Q: What else will it take to get Lucent back on track?

A: This is a matter of execution and focus. There's no new knowledge required. There are no silver bullets available. This is just hard work.

Q: What's your outlook for the telecom-equipment market?

A: We're going through a bad period. But over time, the technology sector and the communication sector are going to grow robustly, certainly by double-digit [rates].

Q: What's Lucent's competitive edge?

A: Our view is that the survivors are going to be the people that offer the most integrated solution to the customers who are going to dominate the business, a combination of very large service providers and specialty service providers. It doesn't mean the CIENAs and the Junipers [rival equipment makers] won't do very well. I think they will. But I think the people with staying power are going to be the people who are able to deal at the next level of an integrated solution.

Q: How are you motivating staff?

A: We took options down to the $12 range. We've gone to a faster vesting. But basically my view is what keeps people at a place and motivated is a sense of direction, of purpose. Our turnover is way down. I don't think retention or motivation is an issue.

Q: When will the stock recover?

A: Having disappointed during the year 2000 and done it pretty consistently over the year, the mantra around here is performance counts, talk doesn't. My own view is we'll restore credibility as performance improves and not until. And I think that's quite appropriate.

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