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Lucent Clarifies Product StrategyLucent Clarifies Product Strategy

Lucent's pumping services and mobility, but cutting funds in some other areas

October 23, 2002

4 Min Read
Lucent Clarifies Product Strategy

Lucent Technologies Inc. (NYSE: LU) has picked the product and service offerings it hopes will help it navigate the telecom downturn and bring the company back to profitability next year.

After presenting what she called "pretty ugly" fourth-quarter earnings to Wall Street analysts this morning (see Lucent Reports Q4), CEO Patricia Russo reiterated a plan announced earlier this month to focus Lucent spending on "near and clear" market opportunities (see Lucent to Cut Headcount, Products).

The product lineup, like Lucent's pro forma loss of 64 cents a share on revenues of $2.28 billion, didn't hold many surprises. Here's the breakdown:

What Stays

  • Metro and edge optical networking equipment: "We will retain optical networking," Russo said today. Specifically, she mentioned the Metropolis optical line, which she claimed is in 45 trials with various carriers worldwide and has been picked for deployment by Verizon Communications Inc. (NYSE: VZ). On the transport side, also staying are the LambdaUnite high-end switch and LambdaXtreme DWDM core transport box, which Russo said also have good prospects (see Lucent's LambdaUnite Busts Out and Stratos to Purchase Paracer).

  • Circuit switches: Russo said customers are evolving their 5ESS voice switches to packet-based networking. The company's IP Centrex Solution, which combines the SpringTide 7000 IP Service Switch with an iMerge Centrex Feature Gateway, will be kept. She cited SBC Communications Inc. (NYSE: SBC) as a key customer. Russo also said a "large-capacity switch" and a "new high-density optical interface unit" are in trials right now.

  • Core ATM/MPLS migration gear: Lucent's GX 550, CBX 500, and PacketStar (PSAX) core ATM/IP/frame relay gear are all keepers, and Russo says they'll be enhanced with MPLS migration capabilities as customers demand.

  • Net management software: Lucent's Navis series of management packages are bestsellers, Russo said, and investment will not just continue, but will be increased in this area. She claims that more than 900 service providers and enterprises have the software installed in one form or another.

  • Mobility equipment: Lucent's confident of the long-term prospects for its line of wireless CDMA gear and intends to leverage its leadership in that market (Russo claims 70,000 base stations to date) to stake a claim in UMTS too. Russo also said Lucent studies point to business demand for high-volume mobile data access (e.g., file transfer for attachments).

  • Services: Even with the near-term market challenge, Lucent customers are spending billions of dollars on services, either to outsiders or inside support staff, Russo said. Lucent plans to keep its hand in what it sees as a $44 billion annual market opportunity, expanding offerings in network integration, multivendor network management, and outsourcing of network operations. Over 90 percent of the contracts awarded to Lucent in 2002 have "a service component," she said, and "we intend this as a basis for our strategy shift."

What's Shelved

  • Some softswitches: Lucent's softswitches, Russo maintains, are platforms on top of which various applications run. Some of these applications are more successful than others. There's still solid demand for softswitched voice over IP and Internet call diversion, for instance. And wireless networks also are a key target. But customers show no intention of replacing their Class 4 and 5 voice gear with softswitches. As a result, no funds will go toward that particular application.

  • DSL access: Lucent's Stinger line of DSL access concentrators aren't going away, but new developments will be made only on a "customer-by-customer basis."

What about the stuff Russo didn't mention, such as the WaveStar crossconect line? A Lucent spokesperson said WaveStar is alive and well, along with other products that weren't cited. Not being mentioned, in other words, may not mean something's out of the picture.

Russo's list prompted many questions from analysts. One wanted to know how Lucent could be cutting 20 to 25 percent in its services business as part of its goal to axe over 10,000 more employees by March 2003, while placing so much confidence in its future potential. While acknowledging that service volumes have dropped, Russo and CFO Frank D'Amelio replied that the company still expects to see revenues increase in that segment.

The reliance on mobility also raised questions. "From our viewpoint, we don't believe Lucent's factored in the substantial risk in the mobility market over the next 12 to 18 months," says Steve Kamman of CIBC World Markets. Kamman, who does not hold stock in Lucent -- although CIBC has done investment banking for the company -- says the chance Lucent's taking in mobility raises questions about other elements of its strategy, such as its emphasis on services.

Interestingly, Lucent maintained today that it expects revenues in the present first fiscal quarter to be down about 10 percent, to roughly $2.05 billion, although next quarter should see an improvement to about $2.5 billion. Lucent execs stressed that the change isn't any reflection on what it sees happening marketwise, but instead has to do with bottom-line improvements and with information it's getting from specific customers.

"Our comments for the quarter are not meant to be comments on the market," Russo said. "2003 will be down."

At press time, Lucent shares were trading at $0.73, up $0.01 (1.39%).

— Mary Jander, Senior Editor, Light Reading

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