Since last December, when shares of Lucent Technologies hit a high of $84, both the company's credibility and its stock price have crumbled.
The shares closed at $33.31 on Friday, and a growing number of people openly question whether the Murray Hill, N.J., marvel can pull out of its tailspin. The company's decline is a case study of the dismal state of telecom stocks.
"Lucent is a giant company that may not manage its way out of its mess," warns Maurice Werdegar, chief investment officer of MetaMarkets.com.
"They don't know what the market is or how to attack it," says Andrew J. McCormick, senior optical networking analyst with Boston's Aberdeen Group. "I find it hard to understand what their strategy is."
"They're very much in danger of becoming a non-entity with powerhouses like Cisco, Ciena and Nortel" competing against them, says Mark Lutkowitz, telecommunications consultant for Trans-Formation Inc. in Birmingham, Ala. "You can only have so many powerhouses. Where does Lucent fit into all this?"
Core business troubled
Until the past year, the question of fitting in need hardly have crossed the mind of Lucent's CEO, Richard McGinn. His company practically owned the market for telecommunications equipment. Each of its competitors was, to some extent, a niche player that fit its offerings around Lucent's.
But Mr. McGinn acknowledged in July that Lucent's core voice-transporting-equipment business is drying up faster than expected.
The effects of this evaporation, combined with its failure to make equipment that moves rivers of data traffic efficiently -- like Silicon Valley's Cisco Systems and Nortel Networks of Brampton, Ontario -- spells trouble.
The trouble has been widely felt in individual wallets.
Lucent Technologies -- with more than 5 million shareholders -- is the second most widely held security in the United States behind only Metropolitan Life, according to Chicago's Morningstar Inc. That's largely because it was spun off from widely held AT&T Corp. in 1996.
But also, until recently, there was little reason to consider selling Lucent shares. From the time of its record-breaking initial public offering in 1996 until its peak last December, the shares climbed 1,147%, according to Bloomberg.
Meanwhile, mutual fund managers are hardly immune to its allure.
Lucent is in the top 1% of shares held by mutual funds, with 747 funds holding some of the shares, according to Morningstar. The average equity is held by only 35 funds.
Jeffrey Bronchick, chief investment officer at Reed Conner & Birdwell Investment Management of Los Angeles, says he has been studying Lucent intensively for weeks but has bought no shares.
He says that the stock trades in a no man's land between what a growth manager wants and what a value manager will pony up.
Lucent is not a growth stock because its earnings are decelerating. It's not a value stock because it's still priced too high. It would need to get into the low 20s to attract attention from that bottom-dwelling "value" contingent, Mr. Bronchick says.
Ron Blank, president of rmblank @technology inc., a consultant to venture capitalists in Boca Raton, Fla., also thinks that the shares are unlikely to break out anytime soon.
"You'd have to buy the shares and put them in a lockbox," he says. "Lucent just has a lot of catching up to do."
Meanwhile, few people find themselves more deeply invested than Liam Burke, co-manager of the Flag Investors Communications Fund in Baltimore, with 3% of its portfolio in Lucent shares.
This leaves Mr. Burke with an unsettling feeling. "I like their chances [for a rebound], but it's a very lonely place," he says.
Mr. Burke says he is "not naive" about Lucent's troubles, which range from mismanagement to missed product cycles.
But he says he is still willing to bet on three emerging stars at the company. Jeong Kim, founder and former CEO of Yurie Systems of Landover, Md., is now head of the fiber-optics group. Bob Barron, former CEO of Chromatis, is now head of the group selling products that untangle metropolitan networks. And Deborah Hopkins was hired as chief financial officer from Boeing to clean up Lucent's inventory and receivables issues. Lucent bought Mr. Kim's and Mr. Barron's companies.
But Mr. McCormick says that Lucent has even found a way to render the efforts of Mr. Kim and Mr. Barron less effective by having them report to separate bosses. He wonders how they can coordinate their efforts under that structure to match the efforts of rival Nortel.
Yet Mr. Burke contends that Lucent still has the installed base, the customer relationships, the research capability of Bell Laboratories and the depth and breadth of product line to make the company difficult to beat for big accounts.
A perfect example is the $1 billion SBC Communications account it reported winning last Thursday.
Lucent officials declined to comment because their earnings are scheduled for release. But privately they say that Nortel Networks is enjoying a "halo effect" that puts it in a favorable light.
Lucent's treatment by the market is the opposite, making people forget that the company is strong as ever in wireless infrastructure and other growing markets.