The Lucent Accounting Scandal


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Case Details:

Case Code : FINC039
Case Length : 14 Pages
Period : 1999 - 2004
Pub. Date : 2005
Teaching Note :Not Available
Organization : Lucent
Industry : Telecom
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

In 1996, as a part of its restructuring programme, AT&T6 spun-off its systems and technology units along with Bell Laboratories7 to form a new company named "Lucent Technologies Inc." Lucent had its headquarters in Murray Hill, New Jersey, US.

Lucent was a global leader in telecommunications equipment and manufactured products used in building communications network infrastructure. The company also made communications and network management software and provided a wide range of services.

Its copper line transmissions and switching, wireless and optical gear was used in core telephony and data networks worldwide. It provided wireline and wireless products to leading telephone companies and other communications service providers. Many of Lucent's products were developed by the research and development unit of Bell Laboratories.

Until January 2000, Lucent had been a choice investment bet for investors. Historically, Lucent posted better first fiscal quarter results due to the strong demand for its products by its customers.

However, the Lucent's announcement on January 06, 2000, that its revenues for the first quarter in the fiscal 2000 would be 20 per cent less compared to the first quarter in fiscal 1999, came as a rude shock to investors.

However, financial analysts, who had been closely observing Lucent's balance sheet, were not surprised by the company's poor financial performance.

They felt that though Lucent was lagging behind its competitors in technological innovations, the technological obsolescence of Lucent's products and burgeoning competition had little to do with the fall in the company's revenues...

Excerpts >>

6] AT&T (formerly known as American Telephone and Telegraph) was founded in March 1885, to run the first long-distance telephone network in the US. It provides voice, video, data and Internet telecommunications services to businesses, consumers and government agencies. For the financial year ending December 31, 2003, the company recorded revenues of $34529 mn and a net income of $1865 mn.

7] In 1925, AT&T created a new research and development unit called Bell Telephone Laboratories, commonly known as Bell Labs. It conducted pioneering research and developed radio astronomy, the transistor, the photovoltaic cells, the Unix operating system and the C programming languages. In 1996, AT&T spun off Bell Labs, along with most of its equipment-manufacturing business.

 

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