Must read article. Lucent: The Next Master of the Universe? (Part I) [Reference to possible LU acquisition of ASND/BAY in Part II]
Excerpt: "Lucent may also have a difficult time selling its data products because it
doesn't have established sales channels in that area. While Lucent's
Pavarini said the company has decided to build its own sales team rather
than purchase a company to acquire sales channels, analysts said that
may be a bad move. It may take the acquisition of a company such as
Ascend or Bay Networks to get those channels, according to
Dataquest's Azuma. "Distribution is going to be the number one issue for
them," he said. "They really need channels, especially into the enterprise
where they don't have the experienced sales teams.""
telecoms-mag.com
Lucent has instituted an array of new initiatives, yet how well the company can make them work will mean
the difference between being known as the premiere equipment supplier in the newly defined market space or
simply a well-heeled, traditional telecom supplier.
Susan O'Keefe
April 1998
In the two years since being spun off from the slow-moving AT&T
behemoth, Lucent Technologies has come out swinging. After 24 months
as a stand-alone company, Lucent made more than $26 billion in
revenues last year, including 20-percent growth over the last year in its
core business groups.
That's just for starters. Lucent's name was built on the voice side, and 58
percent of the company's revenues last year came from its sales of
equipment, systems, software, and services to network service providers.
Based on the power of the 5ESS switch, Lucent's flagship product, and
the Any Media platform, Lucent has experienced double-digit growth in
switching, access, transmission, and wireless systems. And Salomon
Brothers predicts that revenues from the Network Systems division will
grow approximately 16 percent this fiscal year.
Lucent's headquarters stand in the shadow of its erstwhile parent in
northern New Jersey, but the company has inherited little of the AT&T
culture that had the potential to bog down this red-hot offspring. Lucent
has forged its own personality, meshing the entrepreneurial spirit and
exuberance of a Silicon Valley upstart with the maturity of Bell Labs.
According to many analysts, that's a powerful combination, one that has
helped put Lucent in the number one or two position in many of the
markets in which it competes.
The next-generation corporate culture has also given Lucent the freedom
to compete in emerging markets that AT&T may not have entered, such
as the Internet telephony and Internet call center spaces. Sales of the
company's traditional switching and PBX equipment are as strong as
ever, but Lucent has also demonstrated remarkable versatility and depth,
becoming a top-tier player in wireless, microelectronics, and optical
networking. Plus, bolstered by the purchase of Octel Communications
Corp. last summer, Lucent now owns close to 40 percent of the voice
messaging market.
There's no question that Lucent is riding high, but can it sustain this
double-digit growth over the long term? If it is to do this, it will have to
tread into new, undefined territory as the service provider market itself
evolves.
A whole new breed of service providers is entering the market in the
forms of competitive local exchange carriers (CLECs), Internet service
providers (ISPs), and competitive access providers (CAPs). This alters
Lucent's traditional customer base in the United States, offering a
challenge but also a huge opportunity if the company can respond quickly
to customer demands.
With the widespread privatization, international telecom markets are also
heating up. However, Lucent's performance in the global arena has been
inconsistent, as competitors such as Siemens, Alcatel, and Ericsson have
captured the lion's share of the market. Overall, only about 25 percent of
the company's revenues come from international sales, a balance that
analysts say could hurt Lucent in the long run--especially as its
competitors surge into the U.S. market. Another challenge is the
converging world of voice and data networks; service providers of all
types will be looking for equipment companies that can supply an
end-to-end networking solution.
Richard A. McGinn, appointed CEO last October and chairman in
February 1998, said there are plans in place to respond to all of these
new challenges. "The drive toward convergence is a tremendous
opportunity for Lucent," McGinn told Telecommunications. "Lucent
knows networks--how to build them and how to keep them at peak
performance. The need for more bandwidth plays to our strengths. We
also realize we must intensify our focus on the globalization of this
business. Seventy percent of the opportunity for Lucent is outside the
United States, and that opportunity is driven by the increased demand for
teledensity and also deregulation, which means more types of service
providers."
The company has reorganized to facilitate internal autonomy and to
enable quicker time to market, and has hired executives from
international companies and PTTs to work on international sales. Lucent
has had only a toehold in data networking, but is making decisive efforts
to plant both feet solidly in that market. These are all new initiatives, yet
how well the company can make them work could mean the difference
between being known as a premiere equipment supplier in the newly
defined market space or simply a well-heeled, traditional telecom
supplier.
Reorganized and Recharged
Last October, Lucent executives thought long and hard about what they
wanted the company to be when it "grew up" and promptly ripped up the
company's organizational chart. The outcome was the creation of 11
business groups--actually small companies (see "Tearing Up the
Chart")--giving a clearer focus to future high-growth areas such as data
networking, wireless communications, and communications software. The
goal of the reorganization was to give the groups the autonomy and ability
to respond quickly in an ever-changing marketplace--something few $26
billion companies can do.
"It was becoming increasingly difficult for Lucent to get focused and be
efficient in some very competitive areas with only a few main business
units," Karyn Mashima, vice president of enterprise networks and data
networks systems, told Telecommunications. Eleven may not be the
magic number, Mashima said, and the divisions may be molded
periodically to respond to changes in the industry. "Having the flexibility
to change the corporate structure to respond to the industry is something
you probably wouldn't have seen from us before," she said.
Built into the restructure is group interdependency. A global service
provider group was formed to support the sales and service of several of
the sections. Another group was created to help the company capitalize
on the huge potential of the intellectual property of Bell Labs. The 11
siblings will continue to work together on a variety of products and
technologies. For example, the 5ESS switch is the marquis product of the
switching and access group, as well as the wireless group. The Lucent
Managed Firewall, which falls in the domain of the communications
software group, is also a key offering for the data networking group.
"Interaction with the other business units is constant because the
value-add we provide to the product is about real insight into the
customer and the ability to pull an offer together, because in the most
cases, customers don't buy around the way we are organized," said
Carly Fiorina, president of the global service provider business.
At the same time, a push was started to make Lucent a top-tier player in
data networking and several forward-thinking acquisitions have been
made in that area. (A few groups not seen as key to this overall vision of
being known as a networking company were divested, including the
consumer products groups, which merged with Philips Electronics.
Lucent still owns a 40-percent share of the new business, called Philips
Consumer Communications.)
Perhaps most surprising, the two-year-old company has been spinning
off internal ventures--six in all--that focus on technology and products
developed in Bell Labs that wouldn't have had a place under the prior
organizational scheme (see "Start-Ups: A Bold Approach to Capitalizing
on Bell Labs Technology... Finally").
"We have total accountability. We can go after the fastest-growing
segments of the market and help develop them," said Harry Bosco, vice
president and COO of Lucent's optical networking group. "We can go
out and make partnerships. We have research from Bell Labs tied into
us, so we're focused all the way from the customer down to
development."
Invented Here, But Not Developed
Salomon Brothers analyst Steve Levy criticized the way Bell Labs
technology was underutilized in the past. Pointing to areas such as cellular
and satellite transmission that were invented in Bell Labs but
commercialized by companies such as Ericsson, Motorola, and Hughes,
Levy said, "While Bell Labs invented just about everything important in
communications technology, Bell Labs' parent organizations have
become the commercial market leaders of nothing. The trick for [Lucent]
is inventing something first at Bell Labs and staying ahead of the pack to
bring it to market commercialization."
It's too early to tell if the reorganization has been a success, but early
reports are positive. Many analysts have noticed reduced product
development cycles and an increase in the ability to leverage Bell Labs
technology. UBS Securities analyst Nikos Theodosopolous pointed to
Lucent's January announcement of a dense wave division multiplexing
(DWDM) breakthrough as an example of the company's attempt to
churn out products quickly. "If they get that product out by the end of the
year, they have turned it around in about 18 months," said
Theodosopoulos. "That would be amazing for them."
Forrester Research analyst David Cooperstein has also seen the effects
of the company's reinvention. "Lucent is doing everything aggressively,"
Cooperstein said. "They are acting like a high-tech company, not just an
old-line, dividend-yielding company. They are really taking advantage of
the talent they have in Bell Labs, a talent that was underutilized. Lucent is
speeding up their pace of innovation. They're still not fast by any means,
but they started at what arguably was a very low base." |
