Lucent "not closing" M'sian office

Struggling telecom equipment maker Lucent Technologies Inc has stressed that it will not close its Malaysian office next week as expected by certain quarters.
Written by Fran Foo, Contributor and  Irene Tham, Contributor
SINGAPORE--Struggling telecom equipment maker Lucent Technologies Inc has stressed that it will not close its Malaysian office next week as expected by certain quarters.

"It's absolutely not true. We're not closing our Malaysian office," said Lucent Asia Pacific spokesperson Richard Wright. On job cuts, he said that Lucent was assessing market opportunities in all countries including Malaysia.

However, while its entire operations may be intact, certain departments could well cease to exist. "We know that two divisions will be closed 'very' soon. One will be the regional technical center,'' one source close to the company said.

The source said the members of the technical center underwent a voluntary separation scheme (VSS) briefing yesterday. VSS is a cost-cutting measure widely used by multinational companies in Malaysia as an "incentive" to voluntarily resign with compensation.

Lucent Malaysia employs 330 employees. Since January, the company has reduced its global workforce by 19,000 and eliminated 5,500 contract positions. In addition, about 8,500 workers left through a voluntary retirement program, bringing the global headcount to roughly 86,500 as at end June.

In Singapore, the company has 500 staff. Lucent is currently reviewing its business on the island. It has about 10,900 employees in Asia Pacific, including 3,500 in China.

In late July, the firm said that it would lay off 15,000 to 20,000 additional employees as its third quarter loss widened and sales fell. Lucent's third quarter loss was US$3.25 billion compared with US$301 million in the same period a year earlier, while sales was US$5.82 billion compared with US$7.41 billion.

In an analyst briefing later Thursday in the US, Lucent is expected to detail the progress of its restructuring and tout its improvement in the optical market.

Lucent shares were up US$0.06 to US$6.51 Tuesday as Wall Street mulled over expectations about the analyst meeting, and the results of a recent study showing the company has displaced Nortel Networks as the leader in optical equipment during the second quarter.

The stock has been battered this year as the telecommunications spending slump has deepened. The tough climate has led the company to have more layoffs in an attempt to stem expenses, and increase the size of a recent convertible preferred stock offering to US$1.75 billion from US$1 billion in order to raise more funding.

Analysts expect the company to announce that its belt-tightening regimen is starting to pay off, and to say it's ready for the next phase in its restructuring process.

The first phase of restructuring included the sale of Lucent's Optical Fiber Solutions business to Furukawa Electric and Corning for US$2.75 billion and a partial spinoff of Agere Systems. The company has been shearing off assets as it focuses on two key businesses: mobile technology and integrated network solutions.

"The main areas of focus for the investment community will be getting a handle on future probability through analysis of gross margin and operating expenses," wrote UBS Warburg analyst Nikos Theodosopoulos in a Tuesday research note.

Considering the recent spate of layoffs and forced early retirements, Theodosopoulos calculates the company should have saved US$600 million to US$1 billion through recent cost-cutting measures. The company had already reduced estimates by US$433 million in its recent third quarter.

First Call expects the company to lose US$0.21 a share in its fourth quarter.

Another thing analysts are expecting from Thursday's meeting is "the outlook for Lucent's CDMA wireless business, given recent trends in China and the uncertainty of NextWave licenses," Theodosopoulos said.

Though the company's CDMA business has been doing well since Unicom launched in China, the analyst noted that the decision by private communications company NextWave Telecom about whether to build out its network based on the technology is a "major wildcard" for Lucent.

Analysts expect the company to highlight its improved position in the optical market--a point that a recent report from the Dell'Oro Group brought to light.

The research company's report showed that while overall spending on optical goods was off 16 percent in the second calendar quarter, Lucent managed to increase its market share to 21 percent from 15 percent in the first quarter.

Sanford C. Bernstein analyst Paul Sagawa praised Lucent's performance, especially relative to Nortel's "disastrous" quarter, in which its optical sales fell 54 percent sequentially. Cisco Systems also saw a downturn in optical revenue, which fell 11 percent sequentially, Sagawa noted.

Morgan Stanley analyst Alkesh Shah didn't comment on the upcoming meeting, but advised in a research note Tuesday that investors buy Lucent. The company's historic lows have been between US$4 and US$6 a share, and its fair value is US$11 a share, according to his metrics.

Shah said a look at the company's 8-K filing August 16 showed Lucent has made changes to its credit facilities, which should allow it to embark on phase two of its restructuring.

"We view the amendment as largely positive," wrote Shah, who said a second phase of restructuring should put the company on track to profitability during the second half of 2002.

First Call predicts the company won't be profitable until the first quarter of 2003, with earnings of a nickel a share.

Staff writer Tiffany Kary contributed to this report.

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