The 900-pound gorilla most
feared by the others
Lucent Technologies
David Olive
Financial Post
For all its recent woes, Lucent Technologies Inc. is still the
900-pound gorilla most feared by the other convergence players
bidding to merge Internet with traditional telecommunications
technology.
The former AT&T Corp. subsidiary enjoys a size advantage over
Nortel Networks Corp. and its other fellow telecom suppliers, and
towers over hot start-ups like Cisco Systems Inc. Unlike both those
firms, Lucent has largely eschewed takeovers in favour of nurturing
internal technological breakthroughs. And judging by the success of
its LambdaRouter, a recent triumph of its captive R&D engine, Bell
Labs, Lucent has a shot at keeping pace with state-of-the-art
products that Nortel and Cisco are pulling into their portfolios by
way of pricey acquisitions.
That said, Richard McGinn, the CEO, has shown signs of running
scared, as when, it can be argued, he overpaid last year in lashing
out $20-billion (US) for Ascend Communications Inc., a direct rival
of Nortel's recently acquired Bay Networks Corp. in the field of
Internet routers. "We intend to lead the networking revolution," said
Mr. McGinn, smarting from accusations that the Ascend deal was a
nervous response to Nortel's purchase of Bay a few months earlier.
"With Ascend, we will become the clear leader."
And less troubling than the profit shortfall reported this month that
prompted Wall Street to dump Lucent stock is the reason for the
earnings hit. Mr. McGinn cheerfully concedes Lucent is suffering
from too much of a good thing. It simply stumbled, he explains, in
trying to cope with a huge, unanticipated demand from customers
eager to switch to Lucent's newest fibre-optics products.
Fair enough. But Boeing Co. said as much a few years ago in
accounting for a similar debacle, and predicted a swift return to
prosperity. No such luck. The production delays continued. And in
a booming market for air travel, impatient customers flocked to
Airbus Industrie for a new generation of more efficient aircraft.
Having made the switch, the airlines that defected from Boeing are
unlikely to go through the disruptive process of shifting their business
back to the Seattle giant.
Telecoms, operators of corporate networks and other buyers of
New Age telecommunications products are similarly desperate.
They don't want to fall behind competitors who are better wired
than they are. Their hunger for the latest software, equipment and
complete "turnkey" network systems has already driven many
prospective Lucent clients into the arms of competitors.
That is precisely the outcome Mr. McGinn sought to avoid on
becoming CEO in 1998. Like John Chambers, Cisco's CEO, he
quickly identified Nortel as a major threat, and used that message to
get his managers and techies -- who were engaged in internal
rivalries -- to focus instead on beating the Northern marauder. At a
retreat for 60 top executives in Tucson in 1998, Lucent put up
"Wanted" posters of Mr. Roth, Mr. Chambers and the CEOs of
other chief competitors.
Mr. Chambers was not amused by that stunt. "McGinn made it
personal," he said. "It sent a bad message to his employees." As for
Mr. Roth, the Cisco chief has consistently praised his Nortel rival as
a superb manager even as the two men exchange good-natured
ripostes about each other's prospects. As Nortel closes the
market-cap gap between itself and Cisco (Nortel is worth some
$200-billion US, and Cisco about $360-billion), a megamerger
between the two is not inconceivable.
LUCENT TECHNOLOGIES:
- CEO: Richard McGinn
- Headquarters: Murray Hill, N.J.
- Employees: 153,000
- Market Capitalization: (US) $169-billion
- Designs and builds a wide range of network and communications
software, telephone systems and other components, as well as
fibre-optic projects.
NORTEL NETWORKS:
- CEO: John Roth
- Headquarters: Brampton, Ont.
- Employees: 70,000
- Market Capitalization: (US) $136-billion
- Provides telephone, data, wire products for the Internet and
serves carrier, service provider and enterprise customers.
CISCO SYSTEMS:
- CEO: John Chambers
- Headquarters: San Jose, Calif.
- Employees: 23,500
- Market Capitalization: (US) $369-billion
- Supplies data network products. Clients include governments and
corporations. |
