The telephone companies that purchase Lucent (LU
) gear have too much debt and too much network capacity, so they are slashing costs. Industry spending on equipment, which is key to profitability, is expected to drop 11% in 2002, and 3% in 2003.PRICES ARE FALLING
The price of telecom equipment is dropping by 30% a year. That's one major reason why Lucent's revenue is expected to plummet 30% in 2002, to $14.8 billion. And gross margins, which peaked at 40% in 2000, fell to 13% last year.COST-CUTTING EASES OFF
Lucent has slashed its workforce to 62,000 employees, down from a previous 106,000. Furthermore, it cut capital outlays from $1.4 billion in 2001 to $750 million in 2002. Additional cost cuts will be tough without losing key talent.CREDIT RATING AT RISK
Lucent's credit rating is already in the middle of the junk-bond tier. Several credit rating agencies still have a negative outlook on the company's debt. If it doesn't return to profitability soon, they could lower their ratings again, increasing Lucent's borrowing costs.