Clark M. Wheatley
School of Accounting - Florida International University
BA242B – University Park, Miami, FL 33199
AT&T spun off its research and development division (the former Bell Laboratories) in
April of 1996, and the newly independent company - renamed Lucent Technologies -
was an instant hit with investors. The company's stock became the most widely held in
the United States, and over the following 3 years and 9 months its price increased
Lucent Technologies manufactures, sells and services voice and data communications
systems and software. By the end of its fiscal-year 1999, Lucent generated over thirty-
eight billion dollars in annual revenues, employed over 150,000 people, and had offices
in more than ninety countries worldwide.
This remarkable price appreciation tracked a series of steadily increasing
earnings that exceeded analyst expectations. Lucent, in fact, had beaten those
expectations in each of its 15 quarters of operations (Zacks, 2000).
On October 26, 1999, Lucent issued a press release describing record earnings for both
the quarter and the fiscal year ended September 30, 1999 (Lucent, 1999a).
revenues were up 23 percent, and earnings were up 50 percent from the fourth quarter
of the previous year. For the fiscal year, Lucent's revenues and earnings were up 20 and
46 percent respectively. Lucent's chairman and CEO, Richard McGinn, described the
results saying: "Lucent enters the new millennium with momentum.
This was the
strongest quarter and the strongest year in Lucent's history."
The report of these record results was accompanied by another press release.
second announcement outlined a realignment of Lucent into "four core businesses." This
realignment was, in the words of McGinn, ".
..intended to mirror the way we are
approaching customers today - with converged network solutions.
We are sharpening
our focus on high-growth areas - such as data networking, optical networking, wireless
semiconductors, e-business and professional services - while speeding our growth in
And, we will also be aligning our management structure to
increase productivity and accelerate our response to customer needs" (Lucent, 1999b).
Over the ensuing days and weeks, Lucent's share price soared.
Climbing steadily from
$59 7/8 on October 25, 1999, it traded at prices over $82 during December 1999, and
closed at $72 3/8 on January 5, 2000.
On January 6, however, Lucent filed a Form 8-K with the U.S. Securities and Exchange
Form 8-Ks are used to report "material events," and Lucent's "event" was
that first quarter earnings for the quarter ended December 31, 1999 would be
significantly below expectations.
Lucent reported that its revenue from Service Provider
Networks was down 2%.
A result, company executives said, that was caused by the
domino effect of unanticipated customer shifts to new optical systems and the
manufacturing deployment and capacity problems that ensued. Indeed, analysts