Lucent, Ascend Marriage Holds Challenges; Merger a good fit but will need tending, analysts say (copyrighted story in SF Chronicle)
sfgate.com
archive/1999/06/28/BU58543.DTL
Deborah Solomon, Chronicle Staff Writer
Monday, June 28, 1999
When Ascend Communications employees
gather today at the Oakland Marriott, they'll
celebrate the completion of their $25.2 billion
merger with Lucent Technologies and the
transition from an independent startup to a
division of a $33 billion telecom giant.
So far, the Lucent buy has been good for
Ascend's 3,000 employees, all of whom
owned Ascend stock options and made
money on the deal.
But the merged company faces significant
challenges as it moves ahead in the fiercely
competitive world of telecommunications.
Lucent, the nation's largest
telecommunications equipment provider,
bought Ascend of Alameda, which makes
computer networking gear, to help it win the
war it's waging against Cisco Systems Inc.,
3Com Corp. and Nortel Networks. All four
companies are battling to control the market
for computer gear sold to phone companies.
Last Friday, Lucent took another step to
shore up its position when it bought Nexabit
Networks Inc. for about $900 million in stock.
The Massachusetts company makes the
switches Lucent needs to send traffic over the
Internet at high speeds.
When the merger with Ascend was
announced, Lucent CEO Richard McGinn
said his company lacked some of the
technology necessary to win that war and
said Ascend would help fill a hole.
But before the merged entity can even
engage in the fight, Lucent first must fully
integrate Ascend into its fold. That integration
is arguably the biggest challenge of any
merger, as companies risk losing market
share if they focus more on internal
housekeeping and assimilation problems
rather than business strategy.
''They need to make sure there's a
smooth transition and that Ascend's
technology products retain their leadership
position,'' said Lee Doyle, vice president of
data communications at International Data
Corp., a research firm. ''They've got to bring
the best of Lucent's voice support together
with Ascend's installed customer base, as
well as integrate their sales teams and
culture.''
There are some small changes under way,
such as the Ascend sign, which was replaced
with the Lucent name and circular red logo
just last week. Gone, too, are all stationery,
business cards and e-mail addresses with
the Ascend name.
''It's kind of like you walk in one day and
you're an Ascend employee and you walk in
the next day and it's Lucent,'' said Tim
Donovan, an Ascend spokesman.
Merging the two employee bases is crucial,
but an equally big challenge is to combine
two business models, a diverse customer
base and different corporate cultures.
McGinn admits that there are potential pitfalls
involved in the merger but said the Ascend
integration has ''gone beyond the
expectations'' of both companies.
''One of our worldly competitors opined that
the Lucent/Ascend merger was great news
for (the competitor) because we would be
internally focused and they would take market
share and grow,'' McGinn said. ''We're well
aware of the fact that there are many cases
where mergers become problematic, but
we're a textbook case of how to do it right.''
Lucent has spent the past few months
cherry-picking Ascend management --
moving some managers to head Lucent
divisions and sending others packing. About
10 percent of Ascend's employees have
been laid off or left the Alameda company.
Ascend will be part of a new division, called
InterNetworking Systems, which will be
headed by Curt Sanford, a former Ascend
executive vice president.
But others, including Mory Ejabat, Ascend's
president and CEO, and Jeanette Symons, a
founder and the chief technology officer, are
expected to leave within a few months.
''I think it's pretty clear that both of them will
be moving on to start other ventures,''
Donavan said. ''Part of the deal was for them
to stay on board six months after the merger
was announced. They probably are going to
be on board until November, but given the
fact that Mory and Jeanette were successful
with this company, they will probably move
on.''
McGinn boasts that Lucent is renowned for
retaining a majority of employees when it
makes an acquisition. He's had experience in
this area, having done more than 21
acquisitions during the past three years.
''The vast majority of the people at Ascend
want to stay and a number of people who left
Ascend before the merger have now
rejoined.''
McGinn credits both Lucent and the dynamic
telecommunications industry as reasons why
a majority of Ascend employees stay on.
The telecommunications world is undergoing
a huge transition, as phone companies look
to converge their voice and data networks.
Ascend's most valuable asset is its
asynchronous transfer mode switch, or ATM,
which can carry voice, video and data traffic
seamlessly over the same network.
Using a technology called packet- switching,
companies are able to send data more
efficiently over a single network by breaking it
into bits or packets. Packet-switching is
cheaper and more efficient than the fractured
network that phone companies use today and
also allows companies to do a better job of
managing the traffic.
Competition to sell packet switches and other
gear to the AT&Ts and Pacific Bells of the
world is tough, however, with Cisco, Lucent
and Nortel up against one another for
multibillion-dollar contracts.
It's been described as the Wild West, with
pulse-racing deals and bidding wars between
the players involved.
McGinn is confident that with the Ascend
addition, Lucent will continue to expand its
worldwide market share beyond its current 7
percent. And the number of people who have
stayed on from Ascend prove the two
companies will be a strong force together, he
said.
''We had $30 billion in sales last year, and
the projection is $36 billion for this year,''
McGinn said. ''To continue this growth rate,
we know we have to be leaders in the packet
technology area. With Ascend, we have a
world leader'' in this area.
Doyle, of IDC, agrees that Lucent and
Ascend will pack a wallop together.
''Ascend's an excellent fit for Lucent. It makes
them overall much more competitive,'' Doyle
said.
McGinn expects a good fight in the months
and years to come, though he notes that the
market is huge and the pie big enough for
several players.
''This is a ferociously competitive
marketplace,'' McGinn said. ''We have to
satisfy our customers and their customers'
unquenching desire for new services. This is
no small feat.'' |
