Just when it seemed the telecommunications meltdown couldn't get any worse, Lucent Technologies Inc. slapped investors and employees with a triple whammy yesterday: The company reported a staggering quarterly loss and announced more job cuts. Combined, that news battered its already tattered stock price.
Lucent's stock fell 45 cents, or 21 percent, to close at $1.65 after it reported declining sales and the $7.91 billion loss for the fiscal third quarter. The 7,000 job cuts also came with the promise of more staff reductions in the future.
It was the ninth straight quarterly loss for Lucent, a communications equipment company based in Murray Hill, and another bucket of cold water in the face of investors. Yesterday, the S&P 500 closed at its lowest point since 1997, and the Nasdaq composite index lost another 4 percent as a chilling month of trading continued to drain billions from investors' pockets.
For people like Alfred Ball, a 56-year-old retired financial systems director from Lucent, it's no longer worth paying attention to the markets in general, or Lucent in particular.
"With it down to the $1 or $2 range, I wouldn't be surprised to see them go belly up," he said. "With so many of the experienced people gone, there's not a lot of people around who know what they're doing."
Lucent's chief executive officer, Pat Russo, passionately insisted the company would still be around when the telecom industry recovers. Asked if the company will survive, Russo said in an interview yesterday, "Absolutely. Without question. I'd be curious as to why anybody's asking. We will unquestionably survive. In fact, we don't even use that word anymore."
Still, the nine-quarter losing streak has been devastating to Lucent, which has lost a combined $25 billion during that period and cut its work force in half. The crisis hitting Lucent is also hammering the rest of the telecom industry. For example, 19 percent of the companies listed by Standard & Poor's as the most likely to default on their bonds are telcos.
Yesterday, Lucent had plenty of company. Once-mighty AT&T reported a $12.7 billion loss and Lucent spinoff Avaya Inc., based in Basking Ridge, lost almost half of its share value and hit an all-time low. The stock closed down $1.73, or 45 percent, at $2.07, after it announced Monday its third-quarter loss was higher than expected and its fourth quarter would be even worse. Another Lucent spinoff, Agere Systems Inc., has also been losing money and slashing jobs.
Telecom services and equipment are about 9 percent of the gross national product, according to Nicholas Economides, professor of economics at New York University's Stern School of Business. So when telecom hurts, the market hurts.
The industry has lost 108,000 jobs in the last year, according to the Bureau of Labor Statistics, and more cuts are almost certainly coming. Lucent alone has lost more than two-thirds of its work force since 1999.
The long fall is continuing for a number of reasons. Key companies such as WorldCom and Global Crossing Ltd. have landed in bankruptcy after accounting scandals.
But all the companies that carry calls bought too much equipment during the go-go 1990s, preparing for an explosion of traffic that never materialized. As a result, they have more room on their networks than they can use. So they don't have a crying need to buy more from Lucent or its competitors.
As network capacity sits unused, consumer prices have fallen. They've been pushed down by price wars from young wireless carriers, who are selling all-you-can-talk plans that make minutes on the phone cheaper than ever. Traditional carriers have followed, pushing revenues down by selling their own buckets of minutes.
The only glimmer of hope is increased data traffic, but companies bill data at a flat rate, so more traffic doesn't mean more revenue.
Lucent executives had said last quarter that the company was "bounding along the bottom."
"Like many others, we were wrong," Russo said yesterday in a conference call with investors. "We were clearly disappointed in the revenue levels this quarter."
The company had sales of $2.9 billion for the quarter, a 16 percent decline from the previous quarter. It took a non-cash charge of $5.83 billion, or $1.70 a share, to write a tax cushion off its books. "It's a bit like, if you take losses on your portfolio, you write that off as a loss on your income taxes," said Steve Kamman, an analyst at CIBC World Markets. "But that's only if you have income this year. It's just if you're paying taxes."
When the company makes a profit, it will be able to use the credits.
The write-off not only hurt the company's reported earnings, it signaled that Lucent doesn't expect to return to profitability anytime soon. It also won't be able to make its numbers look better with future tax cushions until it becomes profitable again. The company said yesterday it will become profitable again in late fiscal 2003. Its fiscal year starts in October.
Lucent had 16,000 workers in New Jersey in January 2001. Yesterday, it was down to 9,500, and keeping the company's remaining workers motivated is a challenge, Russo said.
"You communicate openly, candidly and honestly with the people in the business," she said. "We are doing everything we can to take a balanced approach to our planning. This is not a short-term game. We are in this for the long haul.
"Our people have tremendous resilience."
Former employees like Ron di Cola, 46, know that all too well.
"I have friends who still work there and I think of them often," said di Cola, who lives in Chester and worked in the environmental department at Lucent before taking the early retirement package last year. He now works at Pfizer. "Having left, I know the burden that comes off when you leave. I have a lot of empathy for what they're going through. It's selfish, but I'm glad I'm not there."
CHART: The $25 billion burn