4/98 CommIntl article on LU. Jewel in the crown
[Glowing article, but no new info]
The spin-off of Lucent Technologies was one of the more
creative and successful moves made at AT&T during Bob
Allen's reign as chairman. Now, a couple of years on, Lucent
has become a shining star as it begins to realise its full
potential. By Martyn Warwick and Barbara Gengler
Lucent Technologies has the distinction of being the
subject of the largest Initial Public Offering in the
history of the United States. When it was launched
onto the public market in September 1996, the
company immediately raised more than US$3 billion-
and it has never looked back since. Investors have
taken Lucent Technologies to their collective,
pragmatic, and usually flinty, hearts and the company
has responded by tripling its stock value since the day
it was first quoted on the Stock Exchange. Customers
too are much enamoured of the company and its
revenues have reached record highs for seven
quarterly accounting periods in straight succession.
In fact, during the 1997 fiscal year, Lucent generated revenues of more than $26
billion, which was an increase of 13% over the previous 12 month period.
Meanwhile, profits for the year rose by an astonishing 43% to $1.507 billion.
It's an all-time high
As for this year? Well, the love-in by analysts and investors shows no signs of
hitting the buffers, especially as Lucent continues regularly to beat Motorola and
Ericsson to the big bucks contracts that are up for tender both in the US and
overseas.
In fact, of the 29 brokerage firms which regularly track and monitor Lucent, 24
of them rate the company with either a "strong buy" or "buy" recommendation. In
mid-March Lucent closed up at an all-time high of $111.56, a truly remarkable
38% growth rate in just two months!
"I credit Lucent's continuing growth and success to its ability to expand its
customer base far beyond what it had when it was spun-off from AT&T.
Furthermore, its breadth of product lines and relationship with its domestic
partners are superb," said Michael Neiberg, equity research analyst at Furman
Selz. "Taking into account the company's improved market share, we would
expect to see about 20% growth."
Bruce Carlsmith, an analyst at NationsBanc Montgomery Securities, told CI that,
"Lucent just keeps on showing its manufacturing and managerial prowess. There
is no question that its technologies and the ways in which they are deployed
make Lucent one of the best in the sector, and probably in the entire information
technology industry."
Born at the right time
Since its divestiture from AT&T, Lucent has evolved rapidly from being just
another manufacturer of carrier-class switches into an innovative, responsive,
high-growth company operating in the vanguard of the world's fast growing
markets. The company has more than 130,000 workers on its books, 20% of
whom are employed outside the US. It also has distributors in more than 90
countries worldwide.
"Much of our success is down to being the right industry in the right place at the
right time," said Scott Horne, of Lucent's corporate media relations division. "We
also have the right qualifications and the right people to make things happen. Add
our technological heritage from Bell Labs and imaginative management to that
mix and there you have the secret of our success."
Analysts agree that management has played a critical role in Lucent's advance.
Unusually, given the oversized egos which characterise so many of the top
executives of big companies, Lucent has profited from an amicable and creative
working partnership between Henry Schacht, (former chairman of Lucent) and
Richard McGinn, (president, CEO and current chairman), at the top of the
corporate tree.
Steve Levy, director of telecomms research at Solomon, Smith, Barney told CI,
"Schacht and McGinn took an eclectic group of managers and empowered them
to run things. Their faith in that team has resulted in the creation of one of the
most original and enterprising corporations in the world."
"Add to that the fact that Lucent is very determined to collect licensing and
royalties due on its intellectual properties and you have a double whammy which
really helps profit margins and the bottom line. Plus, you get faster revenue
growth. Furthermore, Lucent really is very good at marketing innovative
technologies and products."
Lucent's determination is evidenced by the fact that it quickly converts ideas into
working prototypes while simultaneously registering them as patents. This
process is now in overdrive and at present Lucent is patenting an average of
three new ideas each and every working day.
According to IFI-Plenum Data Corporation, which tracks patent awards, Lucent
Technologies was awarded 827 patents in 1997. However, to put things into
some kind of perspective, and before we all get too carried away by the paeans
of praise made to the company and start to think that Lucent is the greatest thing
in the world since sliced bread, it would be as well to bear in mind that IBM
(which has had its troubles in the recent past) was awarded 1,724 patents in the
same year.
Keep on running
To be fair, the Lucent management team is well aware how hard it is to stay at
the top of the greasy pole. Thus, in late 1997, the company was restructured to
focus more clearly on high-growth areas such as wireless, semiconductors, and
data and optical networking.
As a result, the company which formerly comprised three business divisions-
Business Communications Systems, Systems for Network Operations and
Microelectronics- will now be split into 11 new and smaller business units. These
will be Business Communications Systems, Data Networking Systems, Global
Service Provider Business, Wireless Networks, Switching and Access Systems
Group, Optical Networking Group, Network Products Group, Communications
Software Group, Microelectronics, an Intellectual Property Division and a New
Ventures Group.
The AT&T spin-off has quickly matured and has moved forward from the
communications systems arena to what Lucent calls the "hottest growth
opportunities"- that is the optical networking, data networking, wireless
communications and semiconductor markets.
As might be expected of any go-ahead organisation during its virile youth, Lucent
Technologies is on the acquisition trail. In fact, the company made its first foray
as early on as October 1996, when it snapped up Aguile Networks, a provider
of advanced intelligent data switching products that support Ethernet and ATM.
About a year later Lucent acquired Octel, a voice, fax and electronic messaging
technologies company whose products closely complemented Lucent's
networking offers. A month later the company went for Livingston Enterprises, a
global provider of equipment used by ISPs to connect subscribers to the
Internet. The acquisition cost some $650 million in Lucent stock.
Got to get you into my life
As part of its recent push into data networking, Lucent said in December last
year that it plans to acquire Gigabit Ethernet start-up Prominent for about $200
million in stock. The deal brings a high-speed Ethernet component and also
multi-layer switch-routing technology that will fit well with Lucent's growing range
of ATM products.
In the wireless arena, Lucent bought the broadband wireless LMDS (local
multipoint distribution service) unit of Hewlett-Packard and will use it as the core
of the new Lucent Wireless Broadband Networks Division.
Also in 1997, Lucent announced $535 million in international contracts for
wireless and wireline networks in Brazil, Hong Kong and Indonesia. These have
been followed by two more recent contracts, worth more than $140 million, for
wireless networks in Taiwan.
Lucent also has ambitions in digital signal processing (DSP). According to
Forward Concepts, a US market research organisation, Lucent's share of the
consumer DSP market, was worth some $2 billion in 1996 and is growing at an
annual rate of 37%.
DSP chips compress speech, transmit modem data and meet other
communications needs in products such as digital cordless telephones and
handheld devices that connect to the Internet.
Finally, it has formed its own venture capital subsidiary, Lucent Venture Partners.
The new company will be tasked with seeking out innovative technologies that
will ensure that Lucent keeps its competitive edge well honed.
Lucent Venture Partners will also leverage external investments into Lucent
Technologies' existing operations through the formation of joint marketing
agreements, joint product development efforts and possibly also through
partnerships and acquisitions.
The group will have east and west coast US offices, but will look at investment
opportunities worldwide.
The new subsidiary is to be led by Henry Schacht who recently stepped down as
chairman of Lucent Technologies. "This venture will give us early insight into the
technologies, products and companies developing outside Lucent's walls that can
help support our growth," he said.
Lucent has all the necessary attributes (and all the revenues) that would instantly
have propelled it into the Fortune Top 100 listings. However, the rules which
govern the way the rankings are put together prevented its inclusion on this years'
list. That is because any new company born of a Fortune 500 parent (as Lucent
was of AT&T) must first operate independently for a full year before it can
become eligible for ranking.
However, were it able to qualify this year for a Fortune 500 listing, it would rank
at Number 26. As for next year...?
The sky's the limit.
C O M M U N I C A T I O N Sc
I N T E R N A T I O N A L
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