Lucent’s management change should have come sooner: analyst

Monday’s announcement by Lucent Technologies Inc. that Richard McGinn had been ousted as its chairman and CEO came as no great surprise to analysts who follow the struggling networking technology vendor. But some said they remain concerned about Lucent’s prospects because the company hasn’t yet name a permanent replacement for McGinn.

As an interim step, Lucent named onetime top executive Henry Schacht to take over from McGinn while the company launches a search for a new CEO. The return of Schacht, who most recently was chairman of Lucent’s Avaya Inc. enterprise networking equipment spin-off, followed lower than expected earnings in the company’s fiscal fourth quarter and was accompanied by a warning of similar results in the current quarter ending in December.

“There was little question that a shake-up at Lucent was in the works and that someone needed to be held accountable for the company’s state of affairs,” said David Willis, an analyst at Meta Group Inc. in Stamford, Conn. Lucent needs a CEO who can make some needed hard decisions, such as getting rid of unprofitable units and positioning the company to compete in the optical networking business “before it’s too late,” Willis added.

For users, Willis said, the big concern is Lucent could decide to jettison some of its less profitable products. “Look at what happened to 3Com,” he said, referring to 3Com Corp.’s surprise decision earlier this year to phase out its enterprise switching business.

Jim Slaby, an analyst at Giga Information Group Inc. in Cambridge, Mass., said he agreed that a management change was overdue at Lucent. He said McGinn “was standing closest to the window.” The company’s financial performance this year, and a resulting drop in the value of Lucent stock, are “unconscionable,” Slaby said.

“Lucent has always believed [it] invented fire,” he added, noting the company’s roots within AT&T Corp. before it was spun off as a separate company in 1995.

Slaby said that attitude, along with a disbelief on the part of Lucent executives that rivals such as Nortel Networks Inc. and Cisco Systems Inc. could quickly pass the company in the networking business, played a role in bringing Lucent to its current state.

Larry Hettick, an analyst at Tulsa, Okla.-based consultancy, said McGinn had lost credibility both in forecasting earnings and in making the kind of changes that Lucent needs to stay competitive. For example, Hettick said, Lucent executives “already publicly admitted missing the market window for optical networking products.”

“If Lucent is to compete with the Ciscos and Nortels of the world, they’re going to have to act like a next-generation company,” Hettick added. That translates into responding to user needs at the same speed as the telecommunications and network outsourcing companies that are among the buyers of its equipment, he said.

Lucent needs to find a CEO who can establish a long-term strategic direction for the company and then make sure that sticks, said David Toung, a financial analyst at Argus Research Corp. in New York. Currently, Toung said, Lucent’s business outlook “changes every quarter.”

As expected, Lucent reported its fiscal fourth-quarter results late this afternoon, saying that earnings from continuing operations for the quarter ended Sept. 30 dropped from $768 million in the same period last year to $600 million. The financial results originally were due to be reported tomorrow, but the company accelerated the release in the wake of today’s management change.

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Jim Love, Chief Content Officer, IT World Canada

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