Flat-out favorite / Top Lucent's shopping list: Ascend Communications.
nwfusion.com
Lucent on the prowl?
By Tim Greene, Jim Duffy and Chris Nerney
Network World, 09/21/98
Murray Hill, N.J. - Like a muzzled shark in a tank full of fish, Lucent
has been biding its time. But the wait is just about over.
Come Oct. 1, the company will be released from its accounting
shackles and free to wield its considerable corporate assets to
gobble up companies that will fill holes in Lucent's data network
product line (see page 63). Lucent has an overall value of nearly
$100 billion, with some $1 billion cash in pocket.
The flat-out favorite to top Lucent's shopping list: Ascend
Communications. Other possibilities include 3Com, Cabletron,
Nokia and Newbridge Networks.
Experts say Lucent could use some help filling out its ATM wares
and network management capabil-ities.
It could also use products that would provide quick entry into the
hot carrier and ISP data network markets. Time is of the essence
because competitors, notably Cisco, have well-established
accounts with those types of customers. And service providers are
licking their chops over a $2 billion demand for virtual private
network (VPN) services that Lucent cannot provision yet,
according to Tom Nolle, president of CIMI Corp, a technology
assessment firm in Voorhees, N.J.
All Lucent CEO Rich McGinn will say about acquisitions is that the
company is interested in boosting its presence in data networks,
wireless technology and optical networks. Lucent will get what it
needs any way it can, through research and development,
alliances and acquisitions, he says.
While Lucent and Ascend are silent on a potential pairing, Ascend
could help Lucent gain access to desired regional Bell operating
companies and ISPs - two of the largest buyers of data gear.
The RBOCs and the ISPs already buy Ascend gear and both plan
to buy in bulk in the coming years, particularly the RBOCs as they
break free of federal restrictions. Lucent could use that foot in the
door.
"They need to buy Ascend really badly. Ascend has penetration
into the ISPs, and the two companies have little or no product
overlap," says Ray Keneipp, principal analyst at Current Analysis
in Sterling, Va.
For Lucent, Ascend would bring its GX 550 core ATM switches
and Navis management software, which supports IP quality of
service over frame relay and ATM backbones.
While many RBOCs already have Lucent gear, it is voice, not
data, equipment. It will be much easier for Lucent to sell data gear
to an RBOC if it owns a company such as Ascend, whose
switches already anchor RBOC data networks, Nolle says.
With a jump-start in carrier and ISP data networks, Lucent could
take on anyone. "It would be great if they bought Ascend because
Lucent would be a kick-ass competitor to Cisco," says Craig
Johnson, principal of the PITA Group in Portland, Ore.
Cisco had no comment on Lucent's potential to make a big
acquisition, though a Cisco spokesperson did say that
acquisitions are hard to pull off in terms of product and personnel
synergy and integration. Cisco should know; the company has
spent about $7 billion to acquire 27 companies over the past five
years.
Lucent-Ascend would also pose a threat to Nortel, which just
bought Bay Networks in an attempt to better compete against
Cisco.
Newbridge, with an impressive array of ATM gear, would be a
more difficult buy because it is closely linked with Siemens, Nolle
says. Newbridge and Siemens jointly sell ATM switches under the
name MainStreet.
Others rumored to be on the Lucent shopping list include 3Com
and Cabletron, but experts say they are less likely matches. The
LAN network gear 3Com and Cabletron sell is yielding smaller
and smaller profit margins, Nolle says, and that is not Lucent's
game.
"Lucent is going after high-performance campus switching,
multiservice concentrators for WAN access and dense wave
division multiplexing (DWDM)," says John Morency, an analyst
with The Registry in Boston.
In fact, Lucent is expected to make a run at the DWDM market in
the near future with its own technology that will expand the capacity
of fiber optic lines to multiterabits per second. In addition, its less
expensive fiber technology will push broadband fiber to the curb,
Lucent told analysts last week.
With $28 billion in sales, Lucent makes no secret about its desire
to become a kingpin in data networking. Since it split off from
AT&T two years ago, Lucent has been prohibited from making
acquisitions based on a procedure called "pooling of assets," an
accounting method that eases the financial impact of stock-swap
purchases. The restriction disappears Oct. 1.
In the meantime, Lucent hasn't exactly been a wallflower. It has
aggressively snapped up 13 smaller companies for cash. The
result has been an impressive collection of technology.
Those purchases include: Octel Communications, for messaging
($1.8 billion); Livingston Enterprises, for remote access
networking solutions ($650 million); Prominet Corp., for Gigabit
Ethernet switching and IP-based services for LANs ($200 million);
Yurie Systems, for ATM access ($1 billion); and LANNET, for
Ethernet and ATM LAN switches ($150 million).
Earlier this year, Lucent found another way to invest in other
companies without pooling by setting up its own venture capital
arm, Lucent Venture Partners. Backed by $100 million, Lucent
Venture Partners is focusing on technologies such as wireless,
data networking, semiconductors, communications software and
professional services.
In April, Lucent formed a partnership with Accel Partners, one of
the elite venture firms in Silicon Valley. Lucent joined Microsoft,
Compaq and Nortel in financing Accel's $35 million Internet
Technology Fund II.
Lucent executives, including venture fund director John Hanley,
met with Accel as early as January to discuss investment
strategies, Accel Managing General Partner Jim Breyer says.
According to Breyer, Lucent is talking with a number of Accel's
portfolio companies about possible investment or OEM
relationships.
|
