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Meet Rich, Lucent Chief
By Adam Lashinsky
Silicon Valley Columnist
6/29/99 7:00 AM ET
Many people get their 15 minutes of fame; on Monday, I got my 15 minutes with
Rich.
That's Richard A. McGinn, CEO of Lucent Technologies, (LU:NYSE) in old-world
off-line lingo. But he's just plain Rich in new-world online speak. And McGinn is
merely another Rich to the 150,000-plus employees of Lucent, including the newly
assimilated troops at Ascend Communications, which Lucent gobbled up last week
for about $24 billion in stock.
See, in case you haven't figured it out by now, McGinn wants the world to think of
Lucent as a Silicon Valley startup that just happens to be based in Murray Hill, N.J.,
and has a little R&D function called Bell Laboratories behind it. Lucent itself is the
former equipment arm of AT&T (T:NYSE), which Ma Bell spun off a couple years
back.
McGinn breezed through San Francisco Monday, at least partly to schmooze
Lucent's employees, about 3% of whom can phone Silicon Valley without making a
long-distance call. With the acquisition of Ascend, Lucent now claims to be No. 1 in
all sorts of data networking categories: packet-switching equipment (the key to
carrying data calls), remote-access gear (modems for phone carriers), voice-over-IP
equipment (shorthand for zapping spoken words over data networks using Internet
Protocol technology) and billing software, to name a few.
Rich isn't done, though. Last week Lucent agreed to exchange $900 million worth of
stock for Nexabit Networks, a "pre-revenue," next-generation router company with
about 120 employees. And he intimates Lucent will keep its wallet open until it is No.
1 in data networking, a spot Cisco Systems (CSCO:Nasdaq) continues to occupy.
"I expect to see the same pace of acquisitions continue," says the casually dressed
McGinn (remember: Silicon Valley CEOs don't wear ties), who adds that Lucent
invests in its own technology simultaneously while hunting for companies to buy. The
shopping list, says McGinn, includes companies providing technology for wireless
communications, optical networking, software, professional services, broadband
communications and communications-oriented semiconductors.
In fact, there's only one company McGinn doesn't seem to want to buy, and that's
Cisco. "It hadn't been on my mind," he says. McGinn acknowledges that despite the
media's Lucent vs. Cisco preoccupation, the two companies don't actually compete
directly on each others' strongest products (a point elucidated here by TSC's Kevin
Petrie four weeks ago). Given the might of Lucent's European and Asian
competitors, however, a merger with Cisco isn't nearly as nutty as it sounds.
Says McGinn: "It would be a very aggressive combined competitor in addressing
broadband communications."
Such a combination nearly would be a merger of equals: Cisco is worth $200 billion
to Lucent's $175 billion, although the older company's annual sales, at about $33
billion, are three times Cisco's.
Speaking of broadband, though, one wonders why competitors like Juniper
Networks (JNPR:Nasdaq), Broadcom (BRCM:Nasdaq), Nexabit and others even
exist, considering the power of Lucent's vaunted R&D efforts.
"There are always going to be some guys who decide they want to go out and roll
their own," says McGinn, referring to the startups that exploit their passion and easy
access to venture capital to attack a corner of Lucent's business. He describes this
as "barbell innovation," with startups like Juniper, Broadcom and Nexabit occupying
one end of the barbell and giants like Lucent and Cisco the other.
What about the middle of the barbell, the mid-tier companies with less buzz, like
3Com (COMS:Nasdaq), for example? "They get consolidated," says McGinn.
Lucent's biggest recent triumph isn't spending a billion dollars for a startup or
convincing former Ascend CEO Mory Ejabat to attend Monday's briefing when he
surely must have had other things he'd like to be doing (Ejabat isn't expected to stick
around Lucent for an overly long time). Lucent's big score is the up to $1 billion
contract over five years it inked last week with Level 3 Communications
(LVLT:Nasdaq), the phone carrier that's building a "greenfields" network. Level 3
already is a major Ascend customer. Now it will buy so-called software switches from
Lucent that will give Level 3's customers the services typically associated with
trusted public phone networks.
According to McGinn, seven other carriers, some building from scratch and others
building on top of existing systems, are negotiating similar contracts with Lucent.
Customers willing to sign billion-dollar contracts with Lucent presumably can call
Rich McGinn anything they damn well please. And they probably get more than 15
minutes to chat with him too. |
