From Investors Business Daily:
ucent Adding Its Voice To Data Network Arena
Date: 1/15/98
Author: Michele Hostetler
This year should determine whether Lucent Technologies Inc. becomes a big fish in
the roiling networking waters.
The AT&T Corp. spinoff, a leading seller of voice products and specialty chips, will
make its biggest thrust yet into the data networking market.
Lucent will offer at least 30 new data networking products this year, double the rate
of '97, says Bill O'Shea, president of Lucent's Data Networking Systems Group. The
company formed the group in November.
''This year, Lucent should be making a mark,'' said John Armstrong, an analyst at
Dataquest Inc., a San Jose, Calif.-based market researcher. ''If it doesn't, then don't
expect too much in the future.''
The Murray Hill, N.J.-based firm also will buy companies to bolster its product line,
say analysts.
Its expertise in telephone systems and products such as voice messaging should help it
move into data, analysts say. Lucent is following a trend in which voice and data
networks are melding. But it's also fighting for a market where sales growth has
slowed.
Worldwide sales of networking gear rose 16% to $26.4 billion in '97 from $22.8
billion in '96, says In-Stat Inc., a research firm in Scottsdale, Ariz. But the
year-earlier increase was 48%.
San Jose, Calif.-based Cisco Systems Inc. leads the networking pack. Santa Clara,
Calif., neighbors 3Com Corp. and Bay Networks Inc. are trying to catch Cisco
customers with new products. Rochester, N.H.- based Cabletron Systems Inc. is
revamping. Lucent voice archrival Northern Telecom Ltd. of Canada also is casting
for networking sales.
''We expect to be one of the leading players when all the dust settles,'' said Lucent's
O'Shea.
Considering its size, others agree. ''If you look at companies (likely to be) left
standing in the next three years, Lucent clearly comes to mind,'' said Farrokh
Billimoria, an analyst with San Francisco-based Hambrecht & Quist. ''They're
probably one of the biggest threats to Cisco.''
But with voice and data starting to run on the same networks, companies like Cisco
will be selling more into Lucent's strongholds. Cisco, in fact, has made voice- data
integration a priority this year.
That's a reason Lucent is moving into data networks. ''If we don't participate in an
important way, we are likely to expose ourselves to a threat of the traditional data
networking companies making their way into our (voice) space,'' said Lucent's
O'Shea.
The company's been piecing together its data product line in the past year. It still has
holes to fill.
A key product that Lucent will unveil late this year is a routing-switch, also called a
Layer 3 switch. It's designed to shunt traffic around a network faster than routers,
equipment crucial in moving data along most networks. Lucent's target market for
Layer 3 are Internet service providers. Rivals here include Cisco, 3Com and
Alameda, Calif.-based Ascend Communications Inc.
But other companies, such as 3Com and Bay, are ahead of Lucent in Layer 3. And
some analysts say Lucent is moving too slowly.
''(Lucent's) taken a deliberate pace,'' Dataquest's Armstrong said. ''I don't think that's
enough to knock Cisco off the block. Lucent isn't a household name in data
networking.''
Lucent, though, won't compete with traditional network equipment products such as
routers, where Cisco dominates, O'Shea says.
Instead, O'Shea says the company's top priority will be in newer technologies such as
Layer 3 and a fast type of network called Asynchronous Transfer Mode.
Lucent also will target ISPs and large corporations with high-end remote-access
equipment to connect far-flung users to networks, O'Shea says. These include access
concentrators, gear into which many modems connect.
Also, Lucent is developing network products based on optical, or light, technology
and is working on network management software products.
Lucent has another ace in its hand: a solid reputation for service and support that goes
back to long before Cisco, 3Com and the other data networking companies were born.
''We maintain more Cisco networks than Cisco does,'' O'Shea said.
Lucent, though, might need a broader strategy to compete in networking, says Mark
Leary, an analyst with International Data Corp. in Framingham, Mass. It should follow
Cisco's example and develop products using the technologies that work best, not just
the ones it knows, Leary says. Data networking is a different business than telephones,
he points out.
To secure a better foothold, Lucent may have to strike a deal with resellers to gain
market share, say analysts. This would cut its profit.
''To be a winner, they have to get channel space,'' Dataquest's Armstrong said. ''They
have to pay for it. It's going to have to be worth the (resellers') trouble. ''
Lucent is buying its way - literally - into the market, says David Raezer, an analyst
with New York-based Montgomery Securities.
The company in October said it will buy Pleasanton, Calif.-based Livingston
Enterprises Inc. for about $650 million in stock. The deal is slated to close next
month. Livingston sells remote- access products to Internet service providers.
The company also plans to buy Prominet Corp. , a Marlborough, Mass.-based
local-area network (LAN) switch maker, for $200 million. The deal was announced
in December.
''We will continue with acquisitions when they make sense,'' O'Shea said.
Lucent could make a big acquisition in the next 12 to 15 months, H&Q's Billimoria
says. Analysts say Lucent once considered buying Bay.
''Lucent can certainly have an appetite for a larger company . . . because at the end of
the day, buying little companies won't do it,'' Billimoria said.
Then again, maybe it will.
''Do they need a big LAN company like a Bay or a Cabletron?,'' Dataquest's
Armstrong said. ''No, it would be a big boat anchor and hold them down.'' |
