Here comes the competition...
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Lucent's Stock Zapped Despite Deal With TeraBeam
Even a big laser deal can't cut through the gloom
surrounding Lucent's (LU:NYSE - news - boards) stock.
Wednesday saw TeraBeam, a closely held and widely
heralded developer of wireless fiber-optic communication
systems, enlist Lucent's aid in its plan to beam laser light
directly into office buildings for high-bandwidth Internet
access.
The agreement could put Lucent back in the game in the
fast-growing, highly lucrative optical-networking area. Still,
though investors have in the past cheered wildly at the very
mention of TeraBeam's name, reaction to the deal
Wednesday was muted at best: Lucent shares continued
their recent downdraft, falling 2 to 55 7/16, leaving them just
above a 52-week low that followed a January earnings
warning. And at least one analyst believes that reaction is
justified by TeraBeam's technological caveats.
Joint Venture
Lucent says it will invest $450 million in cash and
technology for a 30% stake in a joint systems-supplier
venture with TeraBeam, which will control the rest of the
equipment business. The products will carry the vaunted
Lucent name.
TeraBeam's promise -- enabling big bandwidth capacity for
users while bypassing the need to bury underground cable
-- is enticing, particularly for a company such as Lucent,
which has fallen behind in key areas of the networking
business.
Lucent is a latecomer to wireless broadband access, but
that was a strategic problem, says Lehman Brothers
analyst Steven Levy. "I wouldn't say this is an indication of
how desperate they are, but broadband is coming and
everyone has to beef up on it," says Levy, who has a neutral
rating on Lucent. Lehman has no banking ties to Lucent.
The Optical Solution
"When you look at what's going on in optical networking and
how Nortel (NT:NYSE - news - boards) has taken the lead in
that industry segment, it's important for Lucent to look like
it's staying on the cutting edge, especially in wireless," says
Dave Powers, telecom-equipment analyst with Edward
Jones, which has a buy on Lucent and a hold on Nortel and
no banking ties to either Lucent or TeraBeam.
Lucent Chairman and CEO Rich McGinn was careful to cast
his blessing on the venture in only the broadest of terms in
a conference call Wednesday. "This
high-speed-Internet-access market opportunity is huge," he
said. "And TeraBeam's technology is designed to be a
significant optical solution."
Significant indeed. Last month, after three years of stealth
development, TeraBeam burst onto the hyperbolic
Internet-infrastructure scene with a couple of
headline-grabbing events. First, the company lured AT&T
(T:NYSE - news - boards) wireless CEO Dan Hesse.
It then earned a gushing seven-page report from George
Gilder, telecom's reigning tech visionary. Then shares of
Meade Instruments (MEAD:Nasdaq - news - boards) shot
up 77% on March 15 on news that it would supply
TeraBeam with a seemingly insignificant telescopic lens for
its laser-communications systems. Count tech investors as
believers, it seemed.
Holding Sway?
Still, questions linger about the reliability of laser technology
and whether these systems can be built as cheaply as
touted, particularly in markets other than ideally situated
building clusters. Engineers have been experimenting with
free-space laser communications for three decades, but
they have never overcome the signal disruptions caused by
fog, rain, snow, birds and swaying buildings.
"This technology works in satellite-to-satellite
communications, but doing it here on the ground the same
way you'd use fiber-optic transmission sounds a little far
out," says Ryan Hankin Kent optical components analyst
Lynn Hutcheson, whose firm hasn't consulted for Lucent or
TeraBeam. "This is one of those technologies that never
caught on."
TeraBeam says it can juice up its network power to get
signals though most weather conditions, and that it has a
sophisticated engineering system to compensate for
swaying buildings.
As for holding sway with investors, it seems Lucent has
more work to do. |
