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. |
