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We tapped some industry mavens to find out their thoughts on the end of Lucent as an independent company
November 30, 2006
As Lucent Technologies Inc. (NYSE: LU) finalizes its merger with Alcatel and its power center shifts to Paris, Lucent Technologies Inc. will, from Thursday, cease to exist.
Lucent executives will likely argue that with Lucent CEO Patricia Russo taking the helm of the new company, Lucent isn't going away at all. But semantics aside, it will put to an end the independent operation of one of North America's oldest telephony technology companies.
LU-LU's History
Lucent has its roots in one of the oldest telephone companies -- Western Electric -- which was founded in 1869 and later became part of AT&T. These assets ended up becoming part of AT&T's technology arm, including what is now Bell Labs, which were spun off in the mid-90s when AT&T was broken up. Lucent's culminating moment as an independent company came with its IPO in 1996, at the beginnings of tech-bubble fever. Its profits and stock price would skyrocket with the rise of the telecom balloon.Several years later, Lucent would hit an abyss after regulators and investors uncovered accounting irregularities and billions of dollars in losses, forcing the company to fire former CEO Rich McGinn and begin a long process of restructuring. Lucent would end up having less than a third of the employees it had at the time of its IPO. (See Lucent Supernova, McGinn: McGone, Lucent Shares Hammered by $125M Goof, Lucent Loses $1 Billion, Plans Big Layoff, Lucent's Next Leader, Lucent Cuts Retiree Healthcare, Schacht Faces Retiree Wrath.)
Lucent's status as an American business icon can't be underestimated. Its technology is ubiquitous in U.S. telephone networks. And its financial impact may be even more ubiquitous -- because shares of Lucent, deriving from the AT&T spinoff, are some of the most widely owned investment shares in the world.
Just yesterday, for example, 109.3 million shares of Lucent changed hands on the New York Stock Exchange (NYSE) , making it the most active issue of the day (as it frequently is). The shares are held by thousands of institutional funds, including some of the largest pension funds in the industry.
So what happens now that we have the Paris version of Lucent?
Today – Thursday, November 30 -- as Lucent Technologies Inc. (NYSE: LU) closes its merger with Alcatel (NYSE: ALA; Paris: CGEP:PA), the Murray Hill, N.J., company will cease to exist as a corporate entity, and its CEO, Pat Russo, will take the helm at the world's largest single telecom vendor, Alcatel-Lucent. Friday, December 1 is the new company's first day of trading. (See Bush Approves Alcatel Lucent and US to Watch Alcatel Lucent.)
We asked a selection of industry people whether this marked a sea change in the telecom industry, and the impact Lucent had during its relatively short lifetime. Here is what they had to say.
Frank Dzubeck, Communications Network Architects
Analyst Dzubeck, president of Communications Network Architects, says Lucent has been "a great company, and I'll be sorry to see it go. They've been great fun."
In what way? "Investment bankers say this industry is lumpy. Lucent is the epitome of lumpy. It's the company everyone looked at in terms of this industry's rollercoaster ride. It's had its great highs and deep lows. Tremendous success with blow out quarters, wireless data breakthroughs, Nobel prizes for Bell Labs -- but then it's had scandal. Like with Rich McGinn." (See Bell Labs Makes Molecular Transistor and McGinn: McGone.)
Dzubeck concludes: "Lucent has had every degree of success and every degree of failure. It nearly went out of business. But along the way it's been an extremely admirable competitor to a lot of other big companies, though those firms would never admit it."
But the end of Lucent in itself does not mark a sea change in the industry, he says. "This is just a continuation of the way the industry is going. The entire sector is collapsing down to economies of scale, with a few big guys and the small pockets of specialist startups."
Stan Lumish, CTO, JDSU
“The impact that Lucent and Bell Labs have had on the optical communications industry is immeasurable,” says JDSU (Nasdaq: JDSU; Toronto: JDU)'s CTO Stan Lumish. “Bell Labs stood apart from any entity in the world due to its success at attracting the best and brightest from the top universities around the globe. The number of patents, cited papers, awards and Nobel prizes that can be attributed to the innovation of Bell Labs remains impressive. One hopes that, under the new leadership, this resource will continue to thrive.”
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Paul Saffo, Silicon Valley forecaster
"People had high hopes for it, but they were unrealistic," says Saffo, a respected technology futurist. "Look at the timing. The deal happens just as the bubble is growing in size. They get a couple years under their belt, and the bubble collapses.
"I don't know if you remember Mork and Mindy, but there was the opening scene where Mork had the egg and tossed it up: 'Oh, fly, my little one!' It wasn't quite like that, but ... "
Lucent deserves credit, though, because a spinoff like this is more challenging than the Wall Street types make it sound, Saffo says. "It's like splitting Siamese twins. It is a scary thing to take something like that and spin it out, especially at a place like AT&T. I've seen it in company after company, where the managing cholesterol is so severe," he says.
"It's just amazing for AT&T managers. They could live their life at the company, buy everything at the company store, and just never know what was going on in the outside world. To take those people and spin them out into a tiny little 160,000-person company -- by AT&T standards, that was a startup -- people are scared; they're freaking out. Half of them think they're Steve Jobs and the other half are walking around like Dilbert drones."
While Bell Labs isn't being erased, it's not like the Bell Labs of old, and that worries Saffo. "What does it mean for corporate R&D? Who does long-term research now? We've grown these anorexic greyhound companies that are focused on the short term."
Mukesh Chatter, former CEO, Nexabit and Axiowave
"My experience was a mixed bag, but I was not alone in it. Most of the companies they acquired got shut down," says Chatter, who experienced part of that cycle himself with startup Nexabit. (See Lucent Faces "Exodus of Nexabit Staff".) "It could have been done better, but it happens. It's behind me now. It was good and bad. I wouldn't say it was all bad or all good."
Chatter, who has been out of the industry since his startup Axiowave folded, thinks Lucent should be remembered with respect. "If you go back to the history with AT&T, they certainly gave birth to the telecom industry. Nobody can take that away from them. You cannot judge the company by its performance for the last eight years," he says.
"Lucent as a company had more brilliant people under one roof than any other company on this planet -- people who had a 4.0 [GPA] from kindergarten to Ph.D. Their problem was that they took these very brilliant people from all over the world and turned them into mediocrity. That was the fault of management. But they still had the best people, the best by a wide margin."
Keith Willets, Chairman, TeleManagement Forum
Keith Willets, chairman and founder of the OSS industry body TM Forum , says "Lucent has had a profound effect on the industry. I hope it lives on, and of course Bell Labs will still be alive. The Lucent name is fairly new, but if you look at their entire history they have really done everything, from the transistor, to the digital switch, to Unix."
Willets adds that the creation of Alcatel-Lucent is just part of a bigger process. "This consolidation is the result of big changes in networking to a more simple architecture, and also with the move away from national markets to more international markets. And after the recession, the industry couldn't support all the suppliers."
Jessica Staddon, Area Manager for Security and Privacy, Palo Alto Research Center (PARC)
Staddon's brush with Lucent came during a 1999-2000 stint at Bell Labs in California. "They had a lab out here in Palo Alto, on Porter Drive -- it was supposed to be Bell Labs, but with an entrepreneurial bent. As Lucent started to decline, they closed it down."
Staddon fondly recalls trips back to Murray Hill, where the cross-pollination among researchers created a more vivid environment than the university world she'd been accustomed to. With Bell Labs, she attended talks on all kinds of subjects and was free to meet researchers in a variety of disciplines. "Certainly at that time it was the most exciting research environment I'd ever worked in," she says.
"It's just when the downturn hit, around 2000 or so, people started leaving quickly," Staddon says. "Bell Labs still has very good people; it's just shrunken. If you're going to cite industry labs, you can't not mention them."
Geoff Bennett, Streamshield
Geoff Bennett, Director of Product Marketing at security vendor StreamShield Networks Ltd. , and a former distinguished engineer at Marconi, says "it's sad to see it disappear in a way. Lucent has contributed a lot to telecom. I guess a lot of the original U.S. voice networks are based on 5ESS switches, which are still giving good service. And look at the contribution and impact of Bell Labs!" adds the former Heavy Reading analyst.
But Bennett, who knows Lucent well from his days at Fore Systems and Wellfleet, says "it's clear Lucent couldn't make it on its own, just like Marconi."
— The Staff, Light Reading
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