Revenue Recognition Problems in the Communications Equipment Industry

Authors: Costa, Arjuna; Healy, Paul M.
Source: Harvard Business School
Year: 2006
Company Name: Lucent Technologies
Number of pages: 23

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Abstract:

Designed to explore recognition issues in the context of a potential market downturn. In late 2000, Lucent Technologies reports multiple revisions to its recent financial results due to revenue recognition problems, leading to a dramatic decline in its stock price. This disclosure comes in the wake of a period of spectacular growth for the communications equipment industry during the 1990s. From the perspective of a securities analyst covering the industry, are the troubles at Lucent indicative of larger revenue recognition issues throughout the industry? Facilitates a discussion of potential early warning signs of the risks faced by Lucent’s competitors.