Each time the death knell sounds, Lucent Technologies Inc. seems to rebound.
Last week was a metaphor of what might be the roller coaster ride the Murray Hill-based telecom equipment company has experienced in the past three quarters.
Moody’s Investors Service downgraded the company to junk status amid reports that it planned to lay off 10,000 more workers and also sell off one of its plants to secure money to reduce its liquidity problems.
It also got an ego boost from Merrill Lynch, which ranks it with Swedish Telecom equipment company LM Ericsson on top of the third-generation infrastructure contracts in money value. And Lucent got an adrenaline shot with another infrastructure deal with Sprint PCS valued at about $1 billion dollars.
“What’s happening to Lucent Technologies is not peculiar,” remarked Marc Liggio, vice president of broadband research at Allied Business Intelligence. “It is a reflection of the industry in general.”
Liggio said there was some hype whipped up about the company’s demise, although he insisted that the company had too much going for it from a network of connections in the industry and good equipment.
Moody’s said it downgraded Lucent’s rating to Ba1 from Baa3 and lowered the company’s rating for commercial paper to Not Prime from Prime 3.
“The rating action reflects expectation of a more protracted downturn in the company’s end markets and the resultant challenges to the company’s financing plans as well as increasing concern about the timing, scope and ability to deliver critical liquidity events such as its fiber unit, among others,” said Moody’s in a statement.
Moody’s says it acknowledges the bank facilities secured by the bank, while noting it worries about Lucent’s ability to improve its product offerings.
“Moody’s believes that in the current market, Lucent will find it more difficult to arrange these financings on favorable terms and that the reduced operating outlook will increase its need for access to capital to fund its operations. The company’s current bank facilities total $4 billion and are secured by virtually all of the company’s assets,” the ratings body said.
But Lucent got a good scorecard with investment firm Merrill Lynch. With contracts in Asia-Pacific, Europe, North America and Latin America, the company ramped up its profile with 65 percent of the deals in North America.
“Lucent ties Ericsson for the lead in aggregate dollar value of contracts awarded with a 23 percent share,” said Merrill Lynch in the report, adding that the company’s share of contracts in the past 18 months increased by seven percentage points.
Merrill Lynch referred to the $5 billion contract for CDMA and 1xRTT equipment announced earlier this year with Verizon Wireless, pushing Nokia Corp. to third place with 20 percent and Nortel Networks to fourth with 15 percent. Motorola has 11 percent of the deals making it fifth.
In the $1 billion deal with Sprint PCS, Lucent will deploy Lucent’s base stations, mobile switching centers, and wireless intelligent network software.
“It’s easy to be number one and be losing money,” said Liggio, saying that much of Lucent’s deals are future-oriented. The Sprint PCS contract is for three years. He noted much of the strong contracts are wireless but nothing is guaranteed as the fortunes of the contracts could falter from recessions or spending changes.
He explained that the company is still trying to come to terms with some big decisions like the spin-off of Agere Systems Inc. and Avaya with the challenges of realigning the staff by retaining the good and cutting the unwanted.
“They have long-standing relationships and (their) equipment (is) still going to be competitive,” he said.
