Lucent rewired
The former AT&T spinoff is slowly coming back from near death
A year ago, when Lucent Technologies' John Giere would meet with prospective customers, he'd begin with a string of statistics meant to explain how his company was crawling back to health after suffering corporate cardiac arrest. "It's a tough way to start a presentation," recalls the chief marketing officer. " 'I'm not dead! I'm alive!' "
Customers no longer ask if Lucent is about to keel over. Last month, the iconic provider of telecommunications equipment reported earnings of $174 million for the quarter ended December 31, on top of a $2 billion profit (including a one-time $816 million tax refund) for the fiscal year that ended last September. The numbers represent a stark recovery for a company that lost $29 billion between 2001 and 2003 and almost bit the dust in the telecom meltdown that wiped out nearly 200 companies. "It's amazing," says Carlyn Taylor of FTI Consulting, "that Lucent has survived without going into bankruptcy."
But to thousands of investors, retirees, and ousted employees, Lucent's gritty survival saga is an unrelenting tale of woe. Over the past five years, Lucent has shrunk from the dominant provider of the equipment that powers the nation's telephone systems to a much skinnier supplier that's playing catch-up in critical markets like cellular technology and Internet communications. In 1999, Lucent was a powerhouse with $38 billion in revenues, No. 33 on the Fortune 500. In 2005, revenues are likely to hover around $9.5 billion, dropping the company about 200 places on Fortune 's list. Lucent has shed 125,000 jobs--80 percent of its workforce--some through the sale of business units, but many through layoffs and buyouts. As for the stock, don't even ask. Shares that rose steadily in the late '90s, split twice, and peaked at $84 in 1999 now fetch a mere $3.20.
Dial M for merger. The shock waves from the telecom implosion continued last week. Former Baby Bell SBC Communications announced it had agreed to buy its--and Lucent's--onetime parent, AT&T, for $16 billion. That prompted merger talks between long-distance firm MCI--the post-bankruptcy remnants of WorldCom--and at least two other Baby Bells, Qwest and Verizon.
Lucent did its share to fuel the dot-com hype with breathless growth predictions and financial legerdemain, followed by the requisite restructurings, government sanctions, and investor lawsuits. But lumping Lucent with hyperambitious start-ups and fraudulent self-immolations like WorldCom obscures broader, more painful changes that have overtaken many corporate icons. The tale of Lucent is cautionary for companies--and employees--in many industries that are seeking growth in unfamiliar domains and struggling to keep a competitive edge.
Like other old-line American institutions that once built sophisticated products in-house, Lucent has subcontracted nearly all of its manufacturing to foreign firms. White-collar workers who carefully planned careers to maximize job security have found that no amount of occupational armor is bulletproof. And a cutthroat marketplace is forcing Lucent to slash retiree healthcare coverage and other benefits to keep pace with foreign competitors that have lighter obligations. "It's a balancing act," admits Lucent Chief Executive Officer Patricia Russo. "The most important thing for all our constituents is to make sure we remain a viable enterprise. The best we could do was to weather the storm."
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