[]Outlook - An industry juggernaut, Lucent Technologies (LU) name is synonymous with telecommunications equipment. A leader in its field, LU is a profitable company that is run by one of the strongest management teams in the industry. Home to many award winning products, LU recently reported strong third quarter fiscal results, announced a new reseller agreement, and a $500 million contract win.
Three quarters of a trillion dollars flowed into the telecom industry during the tech bubble of the late 1990s, but after several brutal years watching telecom industry fortunes being driven downward—with the attendant layoffs, bankruptcies, and even a few accounting scandals—in 2005 the telecommunications industry has turned the corner.
Total spending in the U.S. telecommunications industry rose 7.9% in 2004 to an estimated $784.5 billion – a significant improvement from gains of 3.6% in 2003 and 1.9% in 2002. The U.S. telecommunications industry is expected to reach $1 trillion by 2008, at a 9.5% annual growth rate.
An increase in equipment and software revenue and double-digit increases in wireless services, services in support of equipment, and specialized services spurred this growth.
Total international telecommunications spending (not including U.S. figures) reached $1.4 trillion in 2004, up 10.2% over 2003. The international telecommunications market is expected to grow faster than the U.S. market, boosted by high growth in wireless services and broadband access. Overall international telecom spending is expected to reach $2 trillion in 2008, growing at 10.6%.
Business Profile - LU, a global leader in telecom equipment, manufactures products used to build communications network infrastructure. Its copper line transmission and switching, wireless, and optical gear is used in core telephony and data networks worldwide.
It operates in three segments: Integrated Network Solutions (INS), Mobility Solutions (Mobility), and Lucent Worldwide Services (LWS). INS segment provides a range of software and wireline equipment related to voice networking, consisting of switching products, and voice messaging products.
The company’s Mobility segment provides software and wireless equipment to support radio access and core networks. The LWS segment offers deployment, maintenance, professional, and managed services in support of the company’s product offerings, as well as multivendor networks.
Many of Lucent's products are developed by its Bell Laboratories research and development unit.
To date, researchers at Bell labs have received six Nobel Prizes in Physics, nine U.S. National Medals of Science, and eight U.S. National Medals of Technology. Lucent's engineers have earned more than 31,000 patents and have played a pivotal role in inventing or perfecting most of the key communications technologies in use today.
Fundamental Analysis - On July 19, LU reported its financial results for the third quarter of fiscal 2005, ended June 30, 2005. For the quarter, LU reported revenues of $2.34 billion, an increase of 7% over the prior year period.
Lucent reported net income for the quarter of $372 million or $0.07 per diluted share. This compares with net income of $387 million or $0.08 per diluted share in the year-ago-quarter.
"This quarter, we continued to deliver steady, profitable results driven primarily by our strength in 3G mobile networks and growth in our Services business," said LU Chairman and CEO Patricia Russo.
Lucent CFO, Frank D'Amelio confirmed the company's guidance for the fiscal year: "We continue to expect Lucent's annual revenues for fiscal 2005 to increase on a percentage basis in the mid-single digits, which we believe will be at about the market growth rate. We continue to focus on improving our productivity and managing our cost and expenses, while we build on new revenue and market opportunities for the business."
Recent News - On July 25, LU and MetaSolv Software, Inc., announced a global reseller agreement.
Under the terms of the agreement, LU will resell MetaSolv's service provisioning solution covering order management, inventory management and service activation solutions. This agreement with MetaSolv will also enhance LWS's own multivendor capabilities.
On July 14, LU and NMS Communications announced that their new echo cancellers have been selected by Japanese major network operators to improve the voice quality of their next-generation networks in Japan.
Echo cancellers eliminate annoying echoes on phone calls. Such echoes are caused by network delays and by electrical faults where local telephone lines connect to a digital voice network.
On July 12, LU said it received a three-year agreement valued at up to $500 million to provide MetroPCS with new wireless networking equipment.
MetroPCS will deploy Lucent's mobile networking solutions to build out new markets in Dallas, Detroit and Tampa/Sarasota. LWS will provide maintenance and professional services including network optimization, design and engineering.
Conclusion- An industry juggernaut, LU’s name is synonymous with telecommunications equipment. A leader in its field, LU is a profitable company that is run by one of the strongest management teams in the industry. Home to many award winning products, LU recently reported strong third quarter fiscal results, announced a new reseller agreement and a $500 million contract win.
For the third quarter ended June 30, 2005, LU’s revenues increased 7% to $2.34 billion. The company reported third quarter net income of $372 million or $0.07 per diluted share. Third quarter profits slipped 3.9% but still topped Wall Street targets due to strong wireless equipment sales and service revenues.
During the third quarter LU took significant strides to position itself for success in key growth markets. In April, the company announced the formation of the Network Solutions Group to strengthen the company’s operating efficiencies. LU also fortified its management team, implemented new operating platforms, and leveraged its Research and Development capabilities around the world.
During the most recent quarter, LU has announced a large number of new agreements, including a prime contract with the U.S. Navy. LU expanded its market presence in a number of key areas, inked a $500 million contract with MetroPCS, and launched a number of new products