Lucent Taking Aim at Europe as Rival Alcatel Stumbles
Murray Hill, New Jersey, Sept. 18 (Bloomberg) -- Lucent Technologies Inc., North America's biggest telephone-equipment company, is pushing into Europe just as its chief rival there, Alcatel SA, is stumbling.
Since June, Lucent has purchased SDX Business Systems Plc, a U.K. maker of switches and handsets, and networking-equipment company Lannet Data Communications Ltd., which counts France Telecom SA, Alcatel's biggest customer, as a client. Alcatel yesterday said customers are buying less and forecast lower-than- expected profit, sending its shares tumbling 38 percent.
Lucent is acquiring European companies to gain big customers while aggressively marketing new products. Analysts expect the company to step up its buying spree after Oct. 1, when it will be freed from accounting restrictions that made acquisitions less attractive to shareholders.
''Lucent can potentially leverage Alcatel's problems into some wins,'' said Craig Johnson, an analyst with researcher Pita Group in Portland, Oregon, who attended an analyst meeting at Lucent's Murray Hill, New Jersey, headquarters this week.
Lucent shares have gained 82 percent this year to 72 3/4, even after a drop from their July record of 108 1/2.
Armed with its stock and $1.1 billion in cash, Lucent says 60 percent of its new business opportunities will be outside the U.S.
''Europe is not optional. You can't be the No. 1 player and not be there,'' said Carly Fiorina, who oversees Lucent's customer accounts.
Sales of telecommunications equipment are forecast to rise to $650 billion by 2001 from $380 billion in 1997. Some $160 billion will come from Europe and the Mideast.
Lucent's Focus
Lucent sees corporations as key to unlocking the European market. Already it claims to be the top seller there of equipment for call centers, used by companies to take orders and field questions.
The corporate arena is faster-growing than Alcatel's traditional base of European phone companies, which are spending less as they fend off competition in their once-protected markets and grapple with Asia's economic slump.
Those factors are leading Alcatel and rival equipment companies Siemens AG of Germany and Pirelli SpA of Italy to slash prices as they compete for phone company business, analysts said.
''Corporations are the growth market,'' said Jeffrey Heil, an investment officer for the University of California, which owns about 6.39 million Lucent shares.
Head Start
Lucent may have a head start.
Since it was spun off two years ago from AT&T Corp., the company has purchased smaller data-networking companies to beef up its product line and make inroads with companies. Lannet, for instance, gives Lucent accounts with Airbus Industrie, the world's No. 2 maker of airliners, and Bayerische Motoren Werke AG, Germany's second-largest car company.
''Customers were the principal drivers of that acquisition,'' Lucent's Fiorina said.
Alcatel carries more baggage. The former state-owned company has been restructuring for the past three years, selling its vineyards, media units and other businesses not related to telecommunications. It's slashed 30,000 jobs.
Even with those moves, Alcatel warned that it won't meet profit forecasts this year. That prompted yesterday's stock decline that lopped off $11.1 billion of market value. Alcatel's American depositary receipts fell 5/16 to 18 15/16 today.
''Alcatel is losing market share to Lucent,'' said Paul Johnson, an analyst at BancBoston Robertson Stephens.
Target?
Though Alcatel's cheaper now, leading some analysts and investors to speculate that Lucent may be interested in acquiring its French rival, others don't see the benefits. For one reason, the companies' products overlap. For another, Alcatel's size.
''Even though it's hurting, Alcatel is still a monster,'' said Craig Johnson, who said Lucent will face challenges in trying to take market share from the world's fourth-largest telecom equipment maker.
Still, Lucent's gained in the mushrooming European markets for wireless equipment and products used to boost capacity on phone networks. In the past year, it's won more than $200 million in contracts from companies like T-Mobil, Germany's largest wireless phone company, and British Telecommunications Plc.
Just yesterday, Lucent got a contract from Telefonica SA, Spain's biggest phone company, to supply gear that increases the amount of traffic a network can carry.
Alcatel, in its profit warning, said that Telefonica was rolling back spending, one cause of Alcatel's troubles.
Another big Lucent customer in Spain is Retevision SA, one of Telefonica's biggest competitors.
Alcatel is moving to get a bigger piece of the international market by buying DSC Communications Corp. of the U.S. for $3.18 billion.
Yesterday, Alcatel said it will look for more acquisitions to push into higher-profit markets, like wireless equipment and products for Internet access.
That will put it in even closer competition with Lucent. |
