Over the ensuing days and weeks, Lucent's share price soared. Climbing steadily
from $59 7/8 on October 25, 1999, it traded at prices over $82 during December 1999,
and closed at $72 3/8 on January 5, 2000.
On January 6, however, Lucent filed a Form 8-K with the U.S. Securities and
Exchange Commission. Form 8-Ks are used to report "material events," and Lucent's
"event" was that first quarter earnings for the quarter ended December 31, 1999 would be
significantly below expectations. Lucent reported that its revenue from Service Provider
Networks was down 2%. A result, company executives said, that was caused by the
domino effect of unanticipated customer shifts to new optical systems and the
manufacturing deployment and capacity problems that ensued. Indeed, analysts estimated
that Lucent lost up to $1 billion in sales because of production delays, delivery problems
and cancelled orders during the quarter (Dow Jones, 1/20/00).
Although Richard McGinn, said the company expected its problems to be
resolved by the end of the second quarter, and Lucent's Chief Financial Officer, Don
Peterson described the shortfall as a "bump in the road," (Burns, 1/27/00) the response of
investors was harsh. The company's stock price fell from $72 3/8 to $52. The decline in
stock price erased, in a single day, more than $80 billion in market capitalization and a
year's worth of gains. Furthermore, a number of class action lawsuits were filed on behalf
of investors who had purchased Lucent's stock between October 27, 1999 and January 6,
2000 (PRNewswire, 1/20/00). The suits claimed that Lucent violated Sections 10(b) and
20(a) of the Securities Act of 1934 by issuing a series of materially false and misleading
statements that failed to disclose the weaker-than-expected performance in a timely
Conduct a DuPont decomposition of Lucent's ROE for each quarter of 1998,
1999 and 2000 (December 1999 is fiscal year 2000’s first quarter). What...