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Lucent's Fiscal 2006 Looks 'Challenging'

By Maya Roney / Market Scan
January 17, 2006

NEW YORK - Credit Suisse First Boston research analyst Paul Silverstein maintained a "neutral" rating on Lucent Technologies after the company lowered fiscal 2006 revenue guidance last Friday.

Lucent (nyse: LU - news - people ) said on Jan. 13 it expects fiscal first-quarter revenue of approximately $2.05 billion, falling $500 million short of Silverstein's $2.5 billion forecast and $390 million below the consensus estimate of $2.43 billion.

"The relatively mild market reaction to this disappointing news (Lucentís shares closed down only 6 cents, or 2.2%, during Fridayís trading session) suggests that investors appear to be focusing on the strong growth for the back half of fiscal 2006 implicit in Lucentís fiscal 2006 forecast, which begs the question whether investors can and should rely on Lucentís revised forecast," wrote the analyst in a research note Tuesday.

Historically, Lucent has proven that it lacks meaningful ability to forecast its business, Silverstein said, with its expectations for its first-quarter revenue serving as the most recent example.

The expected revenue marks a sequential decline of approximately $380 million, or 16%, compared to the $2.43 billion revenue Lucent reported for its fourth quarter. Lucent attributed the shortfall to underperformance in China and the United States.

"Our own assessment is that fiscal 2006 will prove a challenging year for Lucent, and we think that it is unlikely that this challenge will be relegated to the first quarter of Lucentís fiscal year," said Silverstein.

Lucent also announced Friday that Frank DíAmelio, its CFO, has been appointed as Chief Operating Officer of the company. Mr. DíAmelio will continue as CFO until Lucent names his successor.

Silverstein views this promotion favorably and suspects it is a precursor to D'Amelio's eventual appointment as CEO.