The Fabulous Market Babe
Stock of the Day
1/19/99
The Ascending Lucent / LU
Given all of the questions I have been receiving as of late, I thought an update was in
order.
If only to clear up a number of misconceptions that happen to still be out there.
First of all, for some reason, there has been too much of an "explanation" of the LU/ASND
deal being tied to an "old" company buying a "new" company, in order to acquire a
ready-made growth path.
Which, just to sum it up, is not true.
And that would be because...
Although LU's roots tie back to the very early AT&T days, LU is technically a three year old
company -- that is, all of the old, boring and completely uninnovative management stayed
with AT&T and the Baby Bells when the split occurred, given LU cherry picked all of the
young, dynamic managers.
You know, the good people.
End of story.
Secondly, there exists an idea out there that this merger will result in a clashing of
corporate cultures.
Again, not true.
LU is just as dynamic, if not more so, than ASND. After all, in one sense LU is 1/3 the age
of ASND!
Plus, just to use the example, imagine if things were different. LU could have dragged the
industry along circuit switching lines, instead of wholeheartedly embracing packet
switching.
Something that, to make a quick comparison, is similar to Kellogg moving out of cornflakes
and into new markets such as bagels.
However, as we are all aware, LU chose not to be a drag on the industry and decided
instead to push it forward by inventing new products and constantly innovating.
Remember, big, old companies usually have too much inertia to recognize that they have
to completely drop what has worked for the last 100 years to survive for the next 100.
Something that was clearly not the case for LU.
As for the merger itself, ASND gained the deep pockets it needed to compete with CSCO,
which currently possesses marginally superior products, while LU gained the right to call
itself the all-in-one solution.
Now onto our next question...
What does all of this mean for CSCO?
First of all, let's make an important distinction: Now that LU has acquired ASND, instead of
CSCO being the 800 LB gorilla in the data networking arena, there are now two 400 LB
gorillas in the space.
As such, the question for CSCO now becomes not how LU can match CSCO, but how
CSCO can match LU.
However, it is only fair to state that it is way too early in this game to call the end, as the
LU/ASND merger cannot rightfully be compared to, for example, COMS/US Robotics
(which is, incidentally, finally showing signs of life about three years after the fact), but
more like IBM/Lotus with gave IBM a product channel it didn't previously possess.
And, just to make the point, this product channel that IBM gained allowed it to compete
successfully with MSFT, (i.e. Lotus Notes vs. MSFT Exchange.)
Now let's touch on the CIEN issue, given I have been receiving a fair amount of questions
about LU and CIEN.
If a company is attempting to dominate an industry, it does not buy those companies and
corresponding product lines that it already has. That is, LU invented CIEN's technology
and does it equally well, if not better.
In addition to that small point, there would be serious antitrust issues involved if LU bought
CIEN in an attempt to take it away from CSCO.
Now let's touch upon an issue that a lot of you haven't heard much about.
That being how all of this affects NT.
Here's my take.
NT, while having a good product line, needs to be generating a lot of deals. That is, given
attention is in other places (i.e. with CSCO and LU), NT needs to generate a large amount
of attention for themselves to overcome this, whether it be via new products, new
contracts, etc.
Simply stated, the company needs to accelerate its efforts to get back into people's minds
if it wants its stock price to go anywhere.
If only for the reason that this company will slip into the second tier, even though it is not.
And this would be because...
For the simple reason that investors seldom have room for (or attention span for) more
than one company in a space.
Just think about it for a second.
If you were asked to name the top two software companies out there you would say MSFT
(of course) and then more than likely struggle for the next one.
(Sorry Larry, but back in the land of reality, ORCL is not an automatic choice.)
So here's my point. A company cannot afford to stay silent on its efforts, especially when
the bright light of recognition is being shone on the group.
End of story.
As always, enjoy your fabulous week! |
