Lucent, Cisco Take Lead In
Gear Battle
Date: 6/16/98
Author: Reinhardt Krause
Northern Telecom Ltd.'s move to buy Bay
Networks Inc. will give it more muscle to battle
the two Godzillas in its field - Lucent
Technologies Inc. and Cisco Systems Inc. (See
related story, previous page.)
But speed, not size, may matter most in the
communications slugfest, analysts say.
Equipment suppliers are locking horns to win big
orders from phone companies. These customers
are upgrading their networks to carry voice, data
and Internet traffic more efficiently. And quickly
adapting to the fast-changing gear market is
crucial for equipment makers.
In early June, Bell Atlantic Corp. named Lucent
as a supplier of advanced gear. At the same time,
Sprint Corp. chose Cisco instead of its traditional
supplier, Nortel.
Lucent, Cisco and Nortel are racing to lock up
key technologies.
''Nortel didn't want to lose a prize acquisition to
Lucent, their sworn enemy,'' said Douglas Smith,
an analyst with Salomon Smith Barney.
It's questionable whether Nortel, even with Bay,
will have all the pieces to compete against Lucent
and Cisco for the Internet-based networking gear
that carriers crave, says Christine Heckart, an
analyst at Boston-based TeleChoice Inc.
''Bay was having trouble living up to the many
promises it made to customers over the past
year,'' she said. ''Now that becomes Nortel's
problem.''
Lucent was spun off from AT&T Corp. in '96. It
racks up more than three times the annual sales
of Cisco, the largest maker of networking gear.
Nortel, the No. 2 maker of phone gear, is about
half the size of Lucent.
Nortel and Lucent face hurdles in competing
against Cisco. Silicon Valley-based Cisco is used
to faster product cycles and market shifts than
those experienced by companies in what until
recently had been the staid telephone field.
But Lucent is adapting.
''We're stepping up to the speed challenge,'' said
William O'Shea, Lucent's group president of data
networking systems.
Murray Hill, N.J.-based Lucent has revved up its
acquisitions machine. It's also pushing products
out the door more quickly from its Bell Labs
research arm.
In late April, Lucent said it's buying Yurie
Systems Inc. for about $1 billion. Yurie makes
high-speed switches that carry voice, data and
video over a network. Switches are devices that
move data along networks.
''We put together (the) acquisition of Yurie in 3
1/2 weeks from first discussion to signed
contract,'' O'Shea said. ''And we developed our
new (PacketStar) switch from research to
complete product in less than 12 months.''
Lucent's PacketStar goes head to head against
high-end network routers from Cisco and
Ascend Communications Inc. These routers send
voice and data traffic over networks using
Internet technology.
San Jose, Calif.-based Cisco's strong suit is
networking equipment that works with Internet
technology. It is supplying high-speed routers, for
example, to Denver-based Qwest
Communications International Inc., which is
building a Net-based fiber-optic network.
''Cisco has had a leg up in having technology that
carriers want and that other vendors need,'' said
Paul Johnson, an analyst with BancAmerica
Robertson Stephens.
But Lucent's Internet-based PacketStar switch
will one-up Cisco, claims O'Shea. ''The real
action is providing customers with assured,
multiple levels of quality of service,'' he said.
MCI Communications Corp. started using
Lucent's PacketStar switch in a trial this month.
Lucent expects to start selling the switch by
September.
Phone companies are buying large routers and
switches to send voice and data traffic over
networks. Lucent, Nortel and Cisco are working
to come up with more offerings.
''They'll meet in the middle someplace to provide
broadband switching capabilities,'' said Fred
Briggs, MCI's chief engineering officer.
Yet, traditional suppliers of phone system gear -
Lucent, Northern Telecom and L.M. Ericsson
Telephone Co. - find they must fight hard against
computer networking companies.
For example, Sprint this month named Cisco as
main supplier for its Integrated On-Demand
Network, even though Sprint has worked closely
with Nortel. Lucent also wanted the contract.
ION is the high-speed network Sprint this month
said it will build. It will transmit phone calls, video
and Internet access over the same pipe.
''What stands out in Sprint's announcement is that
it turned to Cisco and said, 'You're the company
that really gets it,' '' said Steven Levy, a Salomon
Smith Barney analyst.
Sprint is basing ION on asynchronous transfer
mode technology. ATM networks transmit data,
voice and video at high speeds.
While Cisco has expertise in building ATM
networks, other factors also played into Sprint's
decision.
''We found their (Cisco's) consistency of vision
and interest in using speed -doing things in a
hurry as an advantage - to be important
characteristics,'' said Sprint President Ronald
LeMay.
Lucent had better luck with Philadelphia- based
Bell Atlantic.
The Baby Bell last week said it plans to spend
about $500 million over five years to carry
Internet and data traffic over a new long-distance
network. About $200 million of that is going to
Lucent. Work is slated to start in July.
Bell Atlantic also is relying heavily on ATM
switching gear.
For carriers, the competition between makers of
phone equipment and computer networking gear
is good news. The rivalry will drive down prices,
say company executives.
(C) Copyright 1998 Investors Business Daily,
Inc.
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