As Restrictions End -- What's on deck for Lucent?
Computer Reseller News - September 28, 1998
Murray Hill, N.J. -- It is the most anticipated mega-acquisition in the networking industry's
history, and it has not even happened-yet.
As data networking companies, such as Cisco Systems Inc., gain ground in markets traditionally
owned by telecommunications suppliers and in the wake of Northern Telecom Ltd.'s purchase of
Bay Networks Inc., pundits speculated about which large data networking company Lucent
Technologies will acquire after Oct. 1. That is when financial restrictions associated with its 1996
divestiture from AT&T Corp. will end.
With $26.4 billion in revenue last fiscal year and $1 billion in cash, Lucent can make substantial
acquisitions, analysts said. In fact, as an independent company, Lucent already acquired 13
companies, six of which were small data networking vendors. The largest grab, Yurie Systems
Inc., Landover, Md., cost about $1 billion.
But after Oct. 1, Lucent can leverage what is called "pooling of interests" to go after even larger
game and enhance its position in data networking.
Lucent would not comment.
The significance of Lucent becoming a major player in data networking is not lost on VARs.
Plenty of resellers would consider teaming with Lucent, but today's networking VARs can only
focus on a limited number of suppliers, said John Ford, manager of software and services at
Midwest Systems Inc., a Minneapolis VAR.
Convincing VARs to sign on with Lucent might be tough, Ford said. "We can only focus on a
couple of partners," which are 3Com Corp. and Cisco, he said.
On the other hand, Mike Wertheimer, president of Solunet Inc., Palm Bay, Fla., anticipates
Lucent's stronger presence in data networking. Solunet became a Lucent VAR when it acquired
Livingston Enterprises, a remote access hardware vendor, earlier this year for about $610 million in
stock. Data networking "is a natural fit [for Lucent.] They have a great opportunity. I just don't
want them to study this to death," he said.
So which networking company will Lucent pick? Most industry observers point to Ascend
Communications Inc., Alameda, Calif.
Ascend's Cascade switches would be its most valuable asset to Lucent.
But Ascend would not help Lucent build its channel because Ascend has relationships with only
five VARs, the largest of which is Solunet, said analysts. This leads industry observers to favor a
purchase of 3Com, Santa Clara, Calif.
3Com "would make a very nice strategic fit for Lucent" because it has enterprise data networking
products and a strong indirect channel, said Dave Passmore, research director at NetReference Inc.,
Sterling, Va. In addition, there would be little product overlap from a 3Com purchase, he said.
Another possibility is a combination of 3Com and Ascend, which would give Lucent a strong
product set with which to compete against Cisco.
Additional rumors include a purchase of Motorola Inc., Schaumburg, Ill., or Finnish wireless
maker Nokia Group. Sun Microsystems Inc., Mountain View, Calif., also is mentioned as a
possible partner. But Sun "is going too far afield of Lucent's core business [and] wouldn't help
them compete with Cisco and Nortel," Passmore said.
Lucent also might consider buying a services or systems integration company, industry observers
said. Lucent needs a strong team of engineers to design networks and consult for its service
providers and large enterprise customers, said Ruth Chatterton, a consultant at Telechoice Inc.,
Owasso, Okla. The most efficient "way to do this is to buy an existing company," she said.
MARGIE SEMILOF contributed to this story.
Copyright ® 1998 CMP Media Inc.
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