IMS High Point of Lucent’s Financial Results
Lucent highlighted its IMS contract with Verizon and the buildout of UMTS-based 3G networks by Cingular and other carriers, as it reported a net loss in its first quarter and a 12% drop in revenue from last year in what CEO Patricia Russo repeatedly called a “disappointing” quarter.
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Russo and new CFO Frank D'Amelio were on the defensive during a call with analysts. Russo said Lucent would recover from the decline in its business, which will see flat revenue or growth in the “low single digits” for the year. For the 3 months ended Dec. 31, Lucent lost $174 million (2 cents a share) compared with a 4 cents profit a year earlier. The loss included a charge of $278 million for a bankruptcy court judgment tied to litigation with Winstar Communications. Sales fell to $2.05 billion from $2.34 billion a year earlier.
“While we are clearly disappointed by having to change our guidance, we do 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 rest of the year,” Russo said. D'Amelio told analysts 2005 ended on a negative note as carriers didn’t make expected equipment purchases: “We didn’t see some of the calendar year-end spend from our customers that we've in the past. In fact, in certain instances we actually saw it pull back… Once you don’t see that at the end of the calendar year, well then those capex budgets are gone.”
IMS, which allows greater integration of wireless and wireline devices, was highlighted as a major growth area by Lucent. IMS from Lucent has been embraced by Verizon, AT&T, BellSouth and Cingular. Lucent said it expects significant revenue from IMS starting in 2007.
“To date we've announced 7 customers for our IMS portfolio, which we believe is more than anyone in the industry, and we have continued to expand our list of IMS trials with fixed, mobile and converged customers,” Russo said: “In all, we currently have 77 trials under way with now 16 customers.” Russo said Verizon was evaluating several IMS elements in its lab, including Lucent’s session manager, active phonebook, feature server, network gateway, and suite of network management software. “This represents a considerable opportunity for us,” she said: “IMS is more of a longer term play in terms of revenue, but our early leadership in this space has positioned us well.”
Lucent officials said they expect to see significant sales of UMTS equipment for GMS-based 3G in the 2nd half of the year, as well as rollouts of EVDO Rev. A -- next generation 3G for CDMA -- in late 2006.
“It is surprising to see a 12% decline in orders from their customers,” analyst Jeff Kagan said. “Lucent has been through a rough few years, and just as we think they are coming out of it, we now have to deal with these disappointing numbers.” Egan-Jones lowered its ratings of Lucent, saying it “cut expenses and the roll-out of VoIP should eventually help sales,” but concerns remain: “Lucent’s ability to meet its financial obligations is currently high but we are concerned about the weak sales, share repurchases, and pension/healthcare accounting.”