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Technology Stocks : Lucent Technologies (LU)

LU 2.750

+0.2%

10:23 AM EST

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To: Jack Whitley who wrote (8470)	7/2/1999 10:10:00 AM
From: The Phoenix	Read Replies (1) of 21876

Definity switches are like annuities for LU, upgrades are now mostly software, margins are fantastic on upgrades, and now data networking capabilities will add more high margin upgrades into the "renewal annuity" mix. All in the same cabinet, that doesn't have to be moved. Lucent can sell a $200,000 to $400,000 upgrade every five years (with data capability) on each G-3 out there (hundreds of thousands) and not even have to knock the dust off of the top of the switch carrier cabinet when doing the upgrade. This is precisely why I feel that LU has a bigger challenge. Customers want to get away from the huge cost of maintaining these switches. Multiservice on packet/IP infrastructures promise not only to reduce WAN costs but also reduct the cost of maintainence. I know LU is running fast and hard at this too and is winning some business but they will be giving up this very lucrative high margin business in exchange. The migration has to be very calculated or we might seem some bumpy quarters. Clearly LU will succeed - the question will be how smoothly... And yes... no argument..LU clearly has the report with the customer given that they have a switch in nearly every account... but so too does CSCO with their routers. The question for customers (perceptually) will be do you want to add routing to your switch or telephony to your routed network.... LU will provide adjuct platform and in many cases remove the Definity for true multiservice platform and CSCO will argue that telephony is an add-on to existing hardware (given that the hardware is less than two or three years old). So, make no mistake ... it'sgoing to be really really interesting and both CSCO, LU and NT too will do very very well. I would not give the nod however to LU due to the fact that they have a revenue/earnings stream that they will canabilize (or will be canabalized) with less expensive less costly to support next generation products. OG

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