Cisco/Lucent. Who will win?
forbes.com:80/forbes/99/0705/6401052a.htm
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In the brawl between Lucent and Cisco, so far both
sides are winning. That can't last forever.
Collision course
By Scott Woolley
"THERE IS NO immutable law of physics that says
giant companies can't continue to grow at 20%-plus a
year," says Richard McGinn, Lucent Technologies'
chief executive.
No law, maybe, but it is a mighty fleet pace for a
behemoth like his, which just hit $33 billion in annual
sales. And yet Lucent has often eclipsed it—last
quarter growth was a blistering 33%. McGinn has
wowed Wall Street with his ability to make Lucent act
like an Internet startup. Its stock is up eightfold since
AT&T spun it off three years ago.
Yet to keep Lucent growing at its current clip, the
52-year-old McGinn must clear major hurdles.
Looming in the distance is the most ominous
obstacle, Cisco Systems, the Internet-equipment
powerhouse that, one-third Lucent's size, is growing
twice as fast.
It's a long-anticipated fight. The two companies' core
businesses—Lucent's gear for voice networks and
Cisco's for data networks—are rapidly converging. But
so far the rivalry has been less than bloody. These two
giants have largely forgone attacking each other,
preferring to steal business from the weak.
In a hot market that's growing 14% a year, Lucent is on
track to hit 20% sales growth before acquisitions;
Cisco is growing 41%. In the past nine months both
stocks have doubled. "You have a barbell market
structure being established," McGinn says. "The big
are getting bigger, the midsize are getting squeezed,
and smaller players [that often invent breakthrough
technology] are attaching themselves to the bigger
guys."
In an industry full of bravado and outsize personalities,
McGinn seems a virtual shrinking violet. He is in no
hurry to go head-to-head with Cisco. While his Ascend
acquisition, set to close in late June, has been played
as a direct challenge to Cisco, it simply shores up
Lucent's dominant position as a supplier to big
carriers. That's in contrast to Nortel, Lucent's
traditional rival, which acquired Bay Networks last
August to directly attack Cisco's original market,
corporate networks.
In contrast to the cautious McGinn, Cisco chief
executive John Chambers is already talking all-out
war, even if the fighting with Lucent hasn't really begun.
The 49-year-old Chambers is given to bold
pronouncements: Telephones are obsolete; all voice
calls will become free; Lucent's technology is
outmoded.
While such talk clearly gets under McGinn's skin, he
hews to a more polite course. In many market
segments Cisco is "the best sales engine out there."
He also has no doubt that the two companies are on a
collision course. Last month Cisco's Washington
office chucked its old phone system for one that works
using Internet-style packets to carry voice and data.
The pilot project still has kinks, but Cisco says by
year-end the system will be on the market for 80% to
90% less than the traditional Lucent offering.
One problem for Lucent is pure image. In May,
Convergent Communications, a company building
networks for small to midsize businesses, considered
Cisco, Lucent and Nortel for a $104 million
purchase—and picked Cisco. Much of the decision
came down to image. "We picked Cisco largely
because we wanted to be seen as data guys," says
Philip Allen, Convergent's executive vice president.
McGinn knows his old businesses are vulnerable, and
he mentally divides Lucent into two parts: attackers
and defenders. While more attention gets paid to the
50% of Lucent's business McGinn figures is playing
defense, the other 50% has plenty of newfangled
surprises to throw at Cisco. He plans to counter
Cisco's Internet edge with secret weapons of Lucent's
own. The company's famed Bell Labs produce a
remarkable 3.5 patents a day.
McGinn wants to push new fiber optics and chips,
areas where Lucent leads, into networks that leap
ahead of Cisco—and everyone else. Example:
Lucent's fancy fiber-optic gear started out in
transcontinental cables. Now it's entering individual
cities. Lucent's attack plan is to push fiber deeper into
individual office buildings—Cisco's home
territory—and eventually get fiber lines plugging into
individual PCs.
"The right architecture is to route a wavelength [of light]
all the way through the network straight into the
desktop," says Harry Bosco, who runs Lucent's optical
networking division. Suppliers of such networks will
need to understand things like fiber-compatible chips
and tunable lasers, areas where Lucent leads the
pack and Cisco is weak.
Telecommunications is enjoying a renaissance
thanks to the doubling of fiber-optic capacity every year.
Just as Moore's Law—the doubling of computer-chip
speed every 18 months—drove Intel's ascendance,
so, too, are fiber optics and the Web feeding Cisco's
and Lucent's explosive growth. But the way these two
titans are going, telecom won't be big enough for the
both of them.
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And LUMM sits on the sidelines watching the battle! But who is LUMM cheering for??
Cheers,
Don |
