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JULY 28, 2003
Edited by Monica Roman HEADLINER Pat Russo: A Promise Unfulfilled Will Lucent Technologies (LU ) CEO Patricia Russo ever whip the telecom-equipment maker back into shape? She promised last October to break its losing streak by the close of the 2003 fiscal year, which ends in September. While Russo has managed to cut costs and improve margins since taking the helm a year and a half ago, those efforts haven't kept pace with declining sales. The result: On July 15, Lucent said it would not return to profitability until 2004. It also said revenues for the third fiscal quarter ended in June will be about $2 billion, or 18% below its $2.4 billion target. Shares dropped 13% the next day, to $1.68. The culprits: a slowdown in the sale of wireless equipment in the U.S., and the unexpected delay of a big contract, which some analysts believe is with Indian wireless carrier Reliance. Paul Sagawa of Sanford Bernstein says the company faces no risk of bankruptcy, because it has $4.9 billion in cash. But more cost cuts, including layoffs, are inevitable. And while Russo's job appears safe, a shakeup in the wireless unit looks likely. By Steve Rosenbush Satellites: Falling to Earth Just a few years ago, space and satellite executives were boasting that commercial space was an unexplored galaxy of potential profits. Such bold predictions have come crashing down to earth. Loral (LOR ) Space & Communications, a satellite maker and operator, filed for bankruptcy on July 15, citing a protracted slump in telecommunications markets. As part of the reorganization, Loral plans to sell a profitable fleet of six communications satellites over North America to Intel (INTC )sat. The same day, Boeing announced it will take a $1.1 billion charge in the second quarter, reflecting higher launch costs and continued weak demand in the commercial satellite business. Boeing also said the Delta 4 rocket -- its newest satellite launch system -- will withdraw from commercial business to focus exclusively on U.S. government launches.   A Mini-Coup for Shareholders It's a small step toward corporate democracy -- but shareholder activists are still calling it a win. The Securities & Exchange Commission on July 15 said it would make it easier for investors to nominate candidates for corporate boards. By September, the SEC will propose new rules that will let shareholders put a candidate on a proxy ballot if they can demonstrate that management is neglecting their interests -- say, by ignoring majority votes on shareholder resolutions. Even then, the new rules won't allow enough shareholder nominees on the official ballot to win a majority on the board. The SEC is treading lightly because CEOs cherish their ability to handpick board members. But shareholder activists say even a little democracy could boost board accountability. An Airline Union Gains Altitude There's a rising power in the airlines. The Aircraft Mechanics Fraternal Assn. (AMFA) now represents United Airlines (UAL ) mechanics, after the 13,100-member group on July 14 tossed out the International Association of Machinists (IAM). The victory puts the union at the bargaining table at 5 of the nation's top 10 airlines. Unlike the IAM, AMFA has never O.K.'d any wage givebacks, which could put it at loggerheads with penny-pinching managers. The United win doubles AMFA's membership and follows failures at ousting the IAM in 1994 and 2001. But AMFA's clout will be limited initially since it inherits a six-year contract that doesn't expire until 2009. Intel: A Charge from Wireless Intel's bets on new technologies are paying off. On July 15, the chipmaker reported second-quarter earnings doubled, to $896 million, from the year-ago period. Intel attributed the results in part to strong demand for its new Centrino wireless notebook-PC package and its Hyperthreading technology for desktop chips, which makes one processor act like two. Intel predicted cost-cutting, new plants, and premium pricing could boost profit margins in the second half. Investors bid up its shares 5%, on July 16, to $25.31, a 52-week high. Edison Goes Private Again Edison Schools (EDSN ) is giving up on getting Wall Street to invest in its elusive dream of making money running public schools. Four years after going public at $18 a share, Edison's board on July 14 approved a bid by CEO Christopher Whittle and Liberty Partners to take the company private for $1.76 a share, a 4% premium over the current price. Although the deal -- subject to shareholder vote -- would remove Edison's finances from the limelight, the company is certain to attract controversy, as it strives to do a better job than public schools of educating students. Et Cetera... -- Scholastic (SCHL ) the U.S. publisher of Harry Potter books, plans to cut spending. -- IBM had a second-quarter net profit of $1.7 billion, vs. $56 million a year earlier. -- The U.S. Attorney's office subpoenaed Tenet Healthcare (THC ) for documents related to physician-relocation practices. CLOSING BELL Wheel-Spinning  Ford Motor's second-quarter earnings of $417 million, reported on July 16, beat Wall Street's expectations of $348 million. But its stock still slid 6%, to $10.99 a share, that day. Why? Ford cut $1.6 billion in costs in the quarter, and management doesn't expect to repeat that performance in the second half.
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