Sources: Lucent Talking to Équipe

Will LU make a move on the core packet-switch startup? Tongues are wagging that a deal may be near

March 5, 2004

3 Min Read
Sources: Lucent Talking to Équipe

Finally, there's an acquisition rumor going around that doesn't involve Ciena Corp. (Nasdaq: CIEN).

Lucent Technologies Inc. (NYSE: LU) is in high-level discussions to acquire core multiservice switch startup Équipe Communications Corp., according to two sources close to the companies.

But first, a little history. In 2001, Lucent canned development on its next-generation core packet-switching product, leaving it with a hole in its product portfolio (see Lucent Bags High-End Switch). Now, Lucent's said publicly the new strategy in core switching is to rely on a relationship with Juniper Networks Inc. (Nasdaq: JNPR) to deliver a converged, multiservice network using Juniper's core routers (see China Deals Brighten Lucent's Day).

But selling routers may not be enough, given the legacy Asynchronous Transfer Mode (ATM) switching requirements of most big service providers. Lucent is also working on a multiservice edge switch -- the CBX3500 -- but this may not satisfy the core requirements of the carriers (see Lucent's WaveSmith Killer).

So, Lucent could still find the need for a core switching product with an ATM foundation -- and that describes the Équipe product. And here are some more reasons why this deal could make sense:

  • Équipe's got a big Lucent heritage. In fact, many of its executives and engineers came out of the Lucent division that developed the ATM switching products it acquired when it bought Ascend/Cascade.

  • Verizon Communications Inc. (NYSE: VZ), a big Lucent customer, has cooked up a converged packet switch (CPS) request for proposal, sources say. The RFP describes a switch for a Layer2/3 buildout that supports ATM. The competitors are expected to be a Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Ciena, Équipe, Lucent, and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). But Lucent, at least right now, doesn't appear to have the product.

  • Sources say Équipe's down to its last few months of cash and needs to make something happen quick -- which also means Lucent could probably get it cheap. The deal size would likely be under $200 million and probably closer to $100 million in stock, sources say.

Here's how one reliable source described the deal: "It would make it look like the VCs had a liquidity event, while in fact not much money changes hands; and most of the people at Équipe get jobs at Lucent... That's good for both of them."

Well, maybe. Another source, asking to remain unnamed said: "Well, it would be a stupid deal, and that's just why it might happen."

What could be the problem? Well, Équipe has had several of them. It's been known that Équipe's been angling for a while to get a piece of core packet-switching action at Verizon -- but it doesn't appear to have made much headway. Case in point: If Équipe is the right product, why hasn't its partnership with Ciena resulted in a big contract at Verizon? (See Équipe & Ciena: We're Fine.) Ciena, for it's part, says everything's just dandy. (Ah, so there is a Ciena connection here after all).

Équipe's product development has had a rocky history. Sources say it never recovered from having a chip supplier -- said to be PMC-Sierra Inc. (Nasdaq: PMCS) -- cancel the chipset on which the product was orginally built. And its VP of engineering left in early 2003 (see Équipe Loses Engineering VP).

But our happy-go-lucky source downplays all that: "It's not as big a problem as you believe."

Why's that? Well, maybe with Lucent behind the product, it could motivate chip partners and the powers-that-be to help revive the product. And perhaps Lucent could use its political muscle with Verizon to convince them it's the right product. At least that's the logic behind what it would take to make the deal happen.

Of course, Lucent could also just be kicking the tires. It's happened before (see Is Lucent Sounding Out Sonus? ). Lucent officials said they do not comment on acquisition rumors, and Équipe officials had not returned phone calls by press time.

— R. Scott Raynovich, US Editor, Light Reading

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