Telecommunications equipment maker Lucent (NYSE: LU) said today it will spin off its call-accounting, cabling, and data businesses to shareholders by the end of September in an effort to focus on its fast-growing communications networking business.

After the spin-off, Lucent -- backed by award-winning research and development outfit Bell Labs -- will concentrate on communications networking, optical networking, wireless networks, communications semiconductors, and related services. These units accounted for about $30 billion of Lucent's $38.3 billion in sales last year.

Lucent shares spiked more than $12 to about $72 in early trading as investors bet the company has found a way to overcome its recent slow-growth woes. Earlier this year, shares plunged when officials at the Murray Hill, New Jersey company said manufacturing capacity problems, lower software revenues, delayed customer purchases, and lower gross margins caused an earnings shortfall and disappointing fiscal first-quarter sales.

Investors should remember, however, that weak earnings and flat revenue growth were only part of the recent problems. After its stock hit a high last July, Lucent dropped on fears about the strength of its balance sheet. Basically, accounts receivable and inventory had been growing too fast. These items caught up with the company's earnings results in the first quarter, though their effects could be seen on the balance sheet and statement of cash flows all last year. The company reported negative cash from operations in 1999, a sharp departure from previous years.

The move to spin off the enterprise business looks like a step in the right direction, but it's hardly a cure-all. Lucent's receivables and inventory didn't bloat because of the company's enterprise business, so spinning it off won't solve the problem.

That said, it's a good move. Both companies will be better focused and easier for investors to track. In a small way, Lucent's move is part of a larger trend across the entire telecommunications industry. Companies are focusing more and more on areas of expertise: optical networking, wireless, data systems, and looking for ways to unlock fast-growing units for investors. Consider AT&T's (NYSE: T) upcoming initial public offering for its wireless business.

Meanwhile, Lucent shareholders will benefit from the creation of a new $8 billion company. The number of shares investors will receive is yet to be determined, but Lucent officials said the matter should be settled about a month before the spin-off. For those of you wondering how an IPO fits into the spin-off plans, it doesn't, at least not in this case.

A spin-off is just a divestiture that results in a division becoming an independent company, not necessarily through an IPO. An IPO is just one way to bring shares public -- usually an issue perceived to be in hot demand. That's what Hewlett-Packard (NYSE: HWP) did last year with Agilent (NYSE: A), its testing and measurement business. Agilent is now publicly traded and growing faster than anyone thought, largely because of its division that tests products for the communications business. The IPO was a way for the new company to raise a lot of cash and enrich investment bankers.

Lucent doesn't plan to bring shares of the new company public in an IPO. It will just issue them based on a predetermined ratio and they'll start trading, presumably on the New York Stock Exchange. How will the company get financing to support operations in lieu of an IPO? Lucent will just slice off a commensurate piece of its balance sheet and hand it over.

The enterprise business makes products such as private branch exchange (PBX) systems used to route calls to different extensions and connect multiple callers to local networks. Hotels, for example, are big buyers of PBX systems. Lucent's enterprise customers include AT&T, United Air Lines, owned by holding company UAL (NYSE: UAL), and DaimlerChrysler (NYSE: DCX).

Lucent officials estimate the markets for its enterprise products are growing an anemic 4% annually, but its businesses, which are number one or number two in all areas, are growing twice as fast. The new business will have about 34,000 employees, representing about 24% of Lucent's current workforce.

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