Lucent Technologies: history and business operations

Lucent Technology

After conducting a DuPont decomposition of Lucent's return on equity (ROE) from the first quarters of 1998, 1999, and 2000 it is essential to realize that those ROEs are, in order, .238, .179, and .072. It is highly important to see the downward trend in those ROEs, which was not commensurate with the company's stock during this time period. The company's stock was steadily rising while its ROE was steadily declining. There were several key factors that contributed to the differences in the company's performance during these key quarters. One of those factors was that the total shareholder equity had increased disproportionately to the company's net income and total assets. The shareholder equity in the first quarter of 2000, 16,079, was nearly four times that in the first quarter of 1998 ($4,671). This four times increases simply was not reflected in the company's assets, which increased from the first quarter of 1998 from $24,752 to $38, 634 whiles its increase in net profit was merely $51 during that time period. The same disproportionate increase in sales also was not commensurate with that of the shareholders equity, the latter of which doubled nearly every year.

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Upon evaluating the seasonally adjusted change in Lucent's sales, accounts receivable, inventory, and gross margin for each of the five quarterly periods from December 1998 to December 1999, it is evident that the company was ultimately experiencing financial woes prior to the time in which it went public with them. The most alarming figures are seen in its gross profit margin, which steadily declined after the March of 2009 quarter. The seasonally adjusted change in its sales fluctuated tremendously, rising and falling multiple times during this period, while its accounts receivables decline after June of 1999. It is noteworthy to mention that since these numbers do not include one-time events and the cumulative effects of accounting changes, Lucent's material event -- that it projected lower than usual earnings for the first quarter of the year 2000 do not apply. There is evidence in these figures that suggest that the reasons offered by Lucent's managers have a certain validity to them. The company's inventory increased during this period, which could have been a result of delays in actually getting that inventory to customers. Such delays were frequently cited by managers as reasons for the fiscal woes. However, certain reasons, such as the drastic drop in accounts receivable in the first quarter of 2000, are not substantiated by the gross margin and accounts receivable.

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