InformationWeek

March 6, 2000

Financial Update:
Lucent To Spin Off Three Divisions
By Paul McDougall

ollowing a 23% drop in its first-quarter profit, Lucent Technologies Inc. (LU-Nasdaq) last week said it will spin off its PBX, Systimax cabling, and LAN infrastructure businesses to focus on faster-growing optical and wireless networking markets. The divested businesses will be combined into a new, yet-to-be-named company. Shares will be distributed to current Lucent stockholders by the close of the company's fourth quarter, ending Sept. 30.

"Forming a separate company that will focus directly and independently on the enterprise networking market enables us to sharpen the strategic focus of both Lucent and the new company," Lucent chairman and CEO Richard McGinn said at a news conference last week.

Lucent executives say the new company will comprise businesses that generated more than $8 billion in revenue last year. It will be headed by Don Peterson, Lucent's CFO, and will have 34,000 employees servicing 1.5 million user sites worldwide. Peterson says the company will be better-positioned to serve its customers, mostly large companies. "In the near term, we have some work to do to get ready for the separation," he says. "We have to find a name, launch a brand, and form a corporate structure."

Some analysts say the move is primarily an effort to appease disgruntled investors, who have watched Lucent's share price plummet more than 40% since January, when the company failed to meet Wall Street earnings expectations. "This is a very short-term reaction," says Bill Lesieur, a Technology Business Research analyst. "It will make the remaining business' numbers look better, but it's hard to see how it creates any value in the long term."

Lucent shares closed up 15% to $68 on the news, but the stock remains well

below its 52-week high of $84.18.

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