Lucent continues shopping spree. Company picks up an ATM switch vendor
By Tim Greene and Torsten Busse
Network World Fusion, 4/28/98
nwfusion.com
Murray Hill, N.J. - Lucent Technologies, Inc.'s
data networking executives went shopping again
this week. This time the company spent $1 billion
to purchase ATM access switch vendor Yurie
Systems, Inc.
The buy gives Lucent greater access to Yurie's hot
ATM access and concentration devices and will
likely let Lucent more easily add the technology to
its own switches.
Lucent is already selling Yurie's LDR family of products under an OEM
agreement as the Lucent Access Concentrator 120 and Lucent Access
Concentrator 60. The OEM sales accounted for less than 10% of Yurie's
OEM business, said Jeong Kim, chairman and CEO of Yurie. Kim will
join Lucent as president of Carrier Networks within the Data Networking
Systems group. The company will remain headquartered in Landover,
Md.
In addition to Lucent, Yurie had private label agreements with Bay
Networks, Inc. and Ericsson. Lucent is expected to keep up the
agreement with Bay, but that is less likely with Ericsson, which is a direct
competitor with Lucent for carrier switching business. Ericsson could try
to strike up a deal with Yurie competitors Larscom, Inc., ADC Kentrox
or 3Com Corp.
Lucent said last fall it wanted to become a serious player in the data
network market, and over the past six months the company has been
busy building up its product portfolio through several acquisitions. For
example, in January of this year, Lucent acquired Gigabit Ethernet switch
maker Prominet Corp. and in December 1997, the company bought
remote-access product maker Livingston Enterprises, Inc.
Still, the $1 billion purchase price raised some industry eyebrows, as
Yurie is projected to do only about $80 million in business this year and
had revenue of $51 million in 1997.
"They are early to market with leadership products in a market that's
about to explode," said Bill O'Shea, president of Lucent's Data
Networking Systems group. Yurie's revenue is sure to increase, he
added.
Indeed, Dataquest, Inc. research shows a compound annual growth rate
of 58% for the WAN ATM access market, which is set to grow from
$205 million in 1997 to $1.8 billion in 2001. In addition, Dataquest
predicts the market for high-speed ATM concentrators - those
supporting up to OC-3 speeds - will grow from $65 million in 1996 to
$1.1 billion in 2001, a compound annual growth rate of 57%.
The phenomenal price also indicates Lucent's optimism that corporate
users are interested in ATM wide-area services.
"The reason the frame relay market has taken off is that it was easier to
implement than ATM. But with this [Yurie] type of box, you can drop it
in your existing network and make use of ATM," said Rosemary
Cochran, an analyst with Vertical Systems Group in Dedham, Mass.
"It's a great purchase," said George Hunt, director and principal WAN
equipment analyst at Dataquest. "Yurie is the premier ATM access
vendor, the first one to ship a commercial ATM access concentrator
which now has the largest installed base."
Yurie's access concentrators take in a variety of traffic - LAN, frame
relay, ATM - and blend it all onto one ATM pipe. Yurie sells products
that can feed links as large as OC-3 at 155M bit/sec or as small as a T-1
at 1.54M bit/sec. The Yurie concentrator also supports T-1 speed
interfaces for frame relay and ATM as well as traditional time division
multiplexed traffic.
According to spokesmen for Yurie, ATM concentration fits into the
networks of Lucent's big accounts, including the regional Bell operating
companies and in the long distance networks of AT&T and others. They
want to sell IP services that ride over ATM backbones. Yurie boxes
enable Lucent to do that, analysts said.
Under the terms of the agreement approved by the boards of both
Lucent and Yurie, Lucent will begin a cash tender offer for all outstanding
shares of Yurie common stock for $35 a share. The offer is expected to
commence no later than April 30 and will be scheduled to close by May
28.
Busse is the San Francisco bureau chief for the IDG News Service.
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