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Technology Stocks : Earnings: Networkers & Communications
CSCO 43.52-0.8%Dec 5 4:00 PM EST

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To: 2MAR$ who wrote (5)1/24/2004 6:17:47 PM
From: 2MAR$   of 12
 
LU $5~$4 ...Loses Steam on Fragile Forecast

By Scott Moritz
TheStreet.com Senior Writer
01/21/2004 01:42 PM EST
Click here for more stories by Scott Moritz

Like the rest of us, Lucent (LU:NYSE - commentary - research) has heard a lot of telecom-spending recovery talk. But the company was candid Wednesday in saying it hasn't seen much actual evidence of rising demand.
Shares of the New Jersey telecom equipment maker fell 27 cents, or 5%, to $4.48 after the company reported weak fiscal first-quarter results across all businesses except its wireless unit. Lucent also warned that there would be ups and downs during the coming year, with total sales likely to be flat to slightly up from 2003 levels.

Investors wanted more. The lack of dazzle from Lucent comes just a day after Motorola (MOT:NYSE - commentary - research) turned in limp cell phone performance Tuesday. The combined mediocrity helped trigger a tech selloff as Wall Street cashed in some of its recent gains. Lucent itself was up more than 60% going into Wednesday's report.


There's always a bit of sell-the-news mentality when a stock has run up that much, and to some observers Lucent's estimate-beating first quarter was reason for continued optimism. But for some bears, Lucent's inability to see the much-promised return of spending only reinforced suspicions that tech investors may have let expectations run too far ahead of actual business conditions.

"There's been a lot of hype in the market, but tech has been notorious for anticipating positive things that never materialize," says David Sanchez of Sanchez Global Advisors, a Beverly Hills investment shop that has no tech positions.

Sanchez is one of a number of hardcore skeptics who say that the so-called economic recovery lacks a solid foundation. These people say the current updraft could peter out as early as the presidential election in November.

"We simply have low interest rates that encourage speculation and consumer spending," says Sanchez.

And consumers don't seem to be buying many old-line phone switches. Nor, for that matter, do the telcos. Lucent posted miserable results -- an 8% sequential sales decline -- for its conventional phone gear unit, in what investors and analysts had expected to be the year's strongest quarter.

And though wireless infrastructure sales were remarkably strong, investors took little confidence that Lucent could repeat that performance. Lucent's top line was boosted by $150 million thanks to payment of a previously uncollected bill for wireless gear. In fact, for the first Lucent indicated that the customer was from India -- it's widely believed to be wireless telco Reliance --and that the bulk of the revenue from that arrangement was now accounted for.

For the period ended Dec. 31, 2003, Lucent posted a profit of $338 million, or 7 cents a share, on revenue of $2.26 billion. A year ago the company lost $389 million, or 11 cents a share, on revenue of $2.08 billion. The latest period included income tax benefits and a gain on the sale of an investment, partially offset by the negative impact of a charge associated with the revaluation of warrants that are expected to be issued as part of Lucent's global settlement of shareowner litigation and business restructuring charges.

Excluding the one-time items, the latest-quarter profit was 3 cents a share. That still compared favorably with the Thomson First Call consensus estimate, which called for a penny-a-share loss on revenue of $2.14 billion.

But for a investing crowd chasing the promise of explosive growth, Lucent wasn't of much help.

"There's a lot of money sloshing around looking for potential returns and 'easy' opportunities," says Eric Von der Porten with Leeward Investments, a San Carlos, Calif., hedge fund.

"I think there should be a correction, but people including me have been saying that for six months or more," says Von der Porten, who is a value investor with some a few short positions in tech but not in Lucent.

Big bear Sanchez is also looking for a correction -- but of a more fundamental nature.

"Consumers aren't earning higher wages, we are not adding more jobs and too many people are living off credit card debts and mortgage refinancings," he frets. Until those major economic issues are fixed, we won't see a true recovery, says Sanchez
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