Lucent Technologies' surprise warning of a significant drop in its expected fiscal first-quarter revenues and profits initially led analysts to question whether this was a wider sectoral issue or a problem isolated to Lucent.
The company rattled the entire communications sector when it announced that its revenues for the quarter to December 31st last would be about $1 billion (€1.03 billion) lower than Wall Street expectations. It estimated revenues would be flat compared with the previous year at $9.8$9.9 billion.
Share prices of leading European telecoms groups - including Ericsson of Sweden, Nokia of Finland and French company Alcatel - fell yesterday after Lucent's 26 per cent plunge in early Wall Street trading. Lucent, which has significant hardware, software and call centre operations in the Republic, had exceeded expectations in every quarter since it was spun out of AT&T in 1996.
Its stellar performance over the past few years has made it the most widely held stock in the US. But the warning sparked a sharp share price tumble from $69 at the close on Thursday to $52 in heavy after-hours trading.
Shares of competitors Cisco Systems and Nortel Networks also suffered significant falls as investors panicked about wider problems in the whole communications sector.
Cisco, Nortel, and other Lucent competitors such as Ciena, Ericsson, Alcatel and Nokia, quickly issued statements that they were comfortable with analysts' estimates.
Lucent's chief executive Mr Richard McGinn said the company was disappointed by its performance in the quarter.
"Let me be clear. This was not a market issue, it was an execution issue. We failed to predict the demand for our 80-channel optical communications product line," he said. Lucent said it was unable to foresee changes in customer orders because many were placed in the last two weeks of the quarter.
This led to manufacturing constraints and an inability to obtain quickly the components it needed to increase manufacturing.
Another factor was a change in customer deployment plans.
Mr McGinn said one unnamed large customer, which was preparing to place "hundreds of millions of dollars worth of orders", ended up suddenly delaying those orders. The effect of that will have some lingering effects on Lucent's second quarter.
Although Lucent and its competitors maintain that demand for communications equipment remains very strong, Lucent's experience does show that there is a significant change in the way the communications market operates.
There is a shift away from large communications projects, typically spanning a four-year build-out schedule, in favour of more smaller projects with shorter time spans.
