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Lucent ousts chief executive

Network firm Lucent brings back old boss and cuts profit outlook
Written by Margaret Kane, Contributor

Lucent Technologies booted out chief executive Rich McGinn and replaced him with former chairman Henry Schacht. The company also cut its sales and profit outlook for the first quarter of 2001.

Schacht served as chairman and chief executive officer from 1995 to 1997. Lucent was spun off from AT&T in 1996.

"In a meeting this weekend, the board reviewed Lucent's recent performance and outlook for the current quarter and determined that an immediate change in leadership was necessary," the company said in release. Lucent added that it would begin a search for a new chief executive.

The company also said pro forma revenue from continuing operations for the current first quarter to drop around 7 percent and pro forma earnings per share from continuing operations to break even. First Call Corp. already lowered consensus had been for a 23 cent per share profit for the quarter. This is the fourth time this year the company has warned investors of lower-than-expected results.

Lucent said it was bumping up the release of its fourth quarter numbers to after the bell Monday. First Call consensus is for a 17 cent per share profit. The company said it does expect to see sequential improvement in results from operations each quarter for the rest of the fiscal year.

"This was a difficult decision made after considerable deliberation," Franklin Thomas, Lucent's senior director, said in a release. "Rich has made significant contributions to Lucent over the past five years as he focused the company on the growth markets and key technologies that would ensure its future prosperity. However, the board felt a different set of skills was required at this point in the company's life."

The move did not come as that big of a surprise to some analysts. "He was painted into a corner. He had no more credibility," said Bernstein analyst Paul Sagawa. "The perception is somehow that they've been missing every quarter, when in reality they've been missing the same quarter over and over," he added. "Normally a company (will) circle the wagons, cut their losses, bring guidance to bare bones and look to improve from there, saying 'let's just take the bad medicine.'

"Lucent kept hoping it wouldn't have to take such hard medicine. McGinn got in a position of telling the Street several times things would be ok, and having to keep coming back and saying no it won't," he said.

Sagawa blamed many of the problems at Lucent on internal operational issues, things like allowing sales people to pull sales forward to meet targets. Many of those issues are already being addressed, he said.

But he added that the company, like many others, will be affected by a general slowdown in telecom spending. Schacht "knows the business through and through, and in the interim, he should be able to do things," Sagawa said. Schacht will step down as chairman of Avaya, a Lucent spinoff.

Lucent said it would move ahead with plans to spin off the microelectronics business and sell its power systems business.

Shares dove earlier this month after the company issued a second warning about its fourth quarter. The company said then it expected to expected to post a profit of between 17 cents to 18 cents a share in the quarter.

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