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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: t36 who wrote (5971)	1/31/1999 11:16:00 PM
From: puborectalis	Respond to of 21876

Tomorrow's Network -- The race to determine the shape of networking has begun Cassimir Medford A good friend of mine likes to say that the channel has one overarching fault: It tends to stick its collective head in the sand at the first sign of turmoil in the marketplace, and denial is not an effective marketing strategy. Well, hold your breath, or you're going to be breathing sand soon because the networking market is on the verge of a significant and sustained period of tumult. The harbinger of that tumult is the recent acquisition of Ascend Communications Inc. by Lucent Technologies Inc. Until the acquisition, the much-ballyhooed battle between Lucent and Cisco Systems Inc. was essentially an ideological one. The two companies had largely noncolliding product lines, so rather than addressing each other on a product-by-product basis, they were shadowboxing. As a result, neither drew blood. More important, as long as they perceived this was little more than a war of words, prospective buyers were able to defer the whole question of next-generation infrastructure until some time in the future-certainly until they sorted out the vicissitudes of the millennium bug and the possibilities offered by e-commerce. But with its acquisition of Ascend, Lucent has put the issue of the network of the 21st century on the front burner. The company has finally made its intentions clear: It is betting that enterprise WAN networking is pretty much a dead proposition and that the buying public will choose to outsource large chunks of its network services to service providers. Cisco, however, is clearly betting that the buying public is not about to forgo the benefits of control afforded by private networks for the unknown quantity that is the shared public network. Conventional wisdom says these are the two opinions that matter most because both companies have the wherewithal to make their dreams come true. Companies such as 3Com Corp., Santa Clara, Calif., and Cabletron Systems Inc., Rochester, N.H., will be forced to either acquire themselves into full-service network products providers or get locked into the price-sensitive LAN market. The latter proposition is not an option for Cabletron, which does not have the channel profile that is necessary to sustain itself in the LAN market. 3Com undoubtedly could survive in a commodity market-perhaps profitably, but certainly not glamorously-because it has developed channel loyalties. If the Cisco status quo wins, then the channel has little to worry about. If there is a wholesale move by end users to the public network, then the traditional channel will have to adjust. The migration toward service provider-driven networking takes the WAN product off the table as far as the traditional channel is concerned. "This is a kind of nightmare period because the business stability we've seen in this space is pretty much gone now," says Tom Nolle, president of CIMI Corp., a Voorhees, N.J., technology assessment firm. "The players that led the way through the '80s and '90s are now becoming marginal players. It's difficult to say who the primary players are going to be in the next three years." Where does that leave the channel? Analysts such as Nolle believe the traditional networking channel should recognize the trends and take advantage of whatever transitional business exists in the WAN space. If and when the WAN card is taken off the table, the plumbing play is not going to be enough for them to sustain themselves. In the longer term, the channel is going to have to carve out a new role for itself. One seemingly viable option is the job of augmenting their network products with server software positions, particularly in the area of e-commerce. Networking VARs need an optional play that does not depend exclusively on the tight margins associated with low-cost LAN switches. Moving customer focus away from the underlying infrastructure and toward the application level will make the buyer less sensitive to changes in the pecking order among networking vendors. The battle of the titans has also been joined by Nortel Networks, Santa Clara, Calif., and 3Com. Each will bring their remarkable and well-financed powers of persuasion to bear on the market. The network of the 21st century is being devised in meeting rooms and labs in Murray Hill, N.J., and Silicon Valley, Calif. It could look a lot different from the network of the '90s. Networking VARs would do well to keep their heads out of the sand. --- What Lucent Bought - Leadership in the ISP market space. Ascend leads the market in WAN switches sold to ISPs with a 45 percent market share. - Strength in the ATM space. Ascend owns a very strong revenue position in ATM WAN equipment sold to service providers with a 23 percent market share. - Leadership in revenue for frame relay switches sold to service providers with roughly a 37 percent market share. - Lucent will immediately improve the marketing of Ascend's carrier-class switches-a win-win solution for the merged entity. - Positioning. This is the warning signal from Lucent. The message to its competitors: Either grow bigger or get locked into commodity markets. --- -Quick Scan Ascend Communications Inc. Alameda, Calif. (510) 769-6001, www.ascend.com Cisco Systems Inc. San Jose, Calif. (408) 526-4000, www.cisco.com Lucent Technologies Inc. Murray Hill, N.J. (908) 582-8500, www.lucent.com