September 28, 1999 5:22 PM
Nortel Comes Out Swinging (and Wall Street Likes It)
By Alec Appelbaum
NORTEL NETWORKS CORP
NT 50.00
2.00 4.17%
CISCO SYSTEMS
CSCO 68.38
0.25 0.37%
LUCENT TECHNOLOGIES
LU 65.88
-0.44 -0.66%
DJIA
10275.53 -27.86
Nasdaq
2756.25 -5.50
Rus. 2000
418.49 -3.37
9/28/1999 4:30PM ET
WHEN IT COMES to the Big Three in telecommunications technology, Nortel Networks (NT) is hardly the aggressor. While upstart Cisco Systems (CSCO) puffs out its chest and derides the "Old World" phone-equipment companies, Lucent Technologies (LU) bides its time flexing its muscles and acting like the reborn juggernaut it is. Nortel, meanwhile, sits up in Canada quietly churning out profits. For a company its size, it has to have the lowest profile of any technology outfit on the market.
Today, Nortel sought to change all that.
The Canadian company's announcement of a five-piece equipment bundle for the Internet age had the rare effect of beating Cisco and Lucent at their own game. Recognizing that each of those companies has only part of the bandwidth-enhancing optical technology it's got, Nortel trumpeted the announcement far and wide. When all was said and done, NT shares were up more than 4%, while Cisco and Lucent spent much of the day underwater. "Nortel has been clever here," says Sanford C. Bernstein analyst Paul Sagawa.
In fact, Nortel's technology won't be completely available until late 2000. But it solves a problem neither Cisco nor Lucent can solve on their own. The new suite takes data traffic traveling at the speed of light and teams it up with routing machines smart enough to read it all and redirect it without getting bogged down. Since Nortel claims some 90% of the domestic U.S. market for high-speed optical fiber, this could be a place for it to amass some power.
Lucent can match Nortel in optical hardware, explains Sagawa, and Cisco can match it in routers. But Lucent's not as strong in routing, and Cisco isn't there yet in optical equipment. Cisco is rushing to fix that gap by spending $7 billion on two recent optical acquisitions, Cerent and Monterey. But Nortel is betting that it can march down the middle and sell phone companies on the simplicity of a one-bundle solution before Cisco can get off the dime.
That seems like an iffy strategy, said one analyst who listened in on a description of the strategy, in part because it's not clear that Nortel will actually reach the market before Cisco and Lucent put together comparable solutions. But it helps Nortel strategically to try the approach now. "A lot of [telephone companies] don't buy [solely in order to get one-stop shopping]," says Sagawa, "but I'd much rather be in a position to test it out."
Nortel clearly meant to tweak Cisco with its announcement. The term "Old World," a favorite insult of Cisco CEO John Chambers', appears in the first paragraph of Nortel's press release. Sagawa sees this inside joke as part of a larger effort to knock Cisco down a peg or two after its bold optical acquisitions. Nortel's announced suite can work in networks that have some traditional equipment, a feature that it implies makes it more realistic than Cisco's all-Internet approach.
Analysts still don't have all the details on Nortel's approach, but Wall Street loves a braggart until the braggart is proven to be a liar. The new, loud Nortel seems serious about keeping investors' attention.
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