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Optical/IP

Cisco, Sycamore Circling Lucent's ATM

Lucent Technologies Inc. (NYSE: LU) is in the midst of a negotiating a deal to sell its telecom data switching unit based in Westford, Mass., sources close to the company say.

The leading contenders for the kit, which would include core and edge switching gear based on Asynchronous Transfer Mode (ATM) and Frame Relay technology, are Cisco Systems Inc. (Nasdaq: CSCO) and Sycamore Networks Inc. (Nasdaq: SCMR), say the sources. Alcatel SA (NYSE: ALA; Paris: CGEP:PA) may also be interested. The price tag could be as low as $200 million or as high as $600 million, according to several experts.

"It sounds like it's moving along quickly," says one financial source close to the company, who asked not to be named. "Cisco can bid the most and wants it the most, and Lucent is pretty desperate."

The Westford unit has its roots in Cascade Communications, a company whose business Lucent acquired through its purchase of Ascend Communications in 1997 (Ascend had acquired Cascade earlier in the same year). The business, which includes the GX 550, CBX 500, and PacketStar (PSAX) core ATM/IP/Frame Relay switches are installed in a large number of top-tier RBOC and incumbent telecom carrier networks throughout the globe.

Two other independent sources with contacts at Lucent say a deal is in the works; one said the board met last Friday but that things could still fall apart.

Lucent and Nortel Networks Corp. (NYSE/Toronto: NT) are widely regarded as the leaders in the multibillion-dollar multiservice and ATM switching markets, according to a recent Optical Oracle, as well as several market research firms. Cisco is running either third of fourth in the market, depending on how you rank them (it vies with Alcatel).

"Lucent and Nortel kind of ping-pong back and forth as leaders in the core ATM market," says Kevin Mitchell, an analyst at Infonetics Research Inc. "Cisco is a leader in the edge, with Nortel strong too. It would make sense [for Cisco] to acquire their core business for the customer contracts, but not the products. Lucent has ignored ATM product development for a while."

Lucent is motivated by its need to further downsize and its thirst for cash, say several Wall Street sources.

"We think the deal would be a win/win because Cisco doesn't have good penetration into RBOC accounts, and Lucent could strike a deal with Cisco to do professional services," says UBS Warburg analyst Nikos Theodosopoulos, when asked whether such a deal would make sense.

Theodosopoulos wrote in a research note issued on October 17 that Cisco should buy Lucent's ATM switching unit; he pegged the deal at 0.5 to 1 times revenues, and estimated those revenues to be as much as $600 million in cash. The note got the rumor mill grinding, but Theodosopoulos says that at the time he had no specific knowledge of an impending deal. "We didn't write that note based on industry buzz, it was based on Lucent's need to downsize," he says.

In an earnings call earlier this week, Lucent CEO Patricia Russo said the company will continue to invest in and support the ATM switching line (see Lucent Clarifies Product Strategy). At the same time, however, the company needs to lay off an addition 10,000 employees, and many are skeptical she can attain such streamlining without shedding entire divisions.

In addition to raising cash, the deal might be part of Lucent's higher-level move toward a services business model.

"Lucent is trying to focus on professional services," says Theodosopolous, adding that if Lucent sold the ATM switching business, it would likely strike a deal with Cisco to provide professional services and support to the business.

Lucent declined to comment on this article; Cisco and Sycamore Networks had not returned calls at press time.

In morning trading, Lucent shares were down $0.03 (3.06%) to $0.95; however, they've risen 35 percent this week.

— R. Scott Raynovich, US Editor, Light Reading
www.lightreading.com Want to know more? The big cheeses of the optical networking industry will be discussing multiservice switches at Lightspeed Europe. Check it out at Lightspeed Europe 02.



Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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skeptic 12/4/2012 | 9:27:21 PM
re: Cisco, Sycamore Circling Lucent's ATM On the technical side, can MPLS really provide the fine-grained QoS that ATM provides?
What about the OAM&P features currently available through ATM?
-----------------------------
If you talk to the people who buy MPLS today,
none of them seem to want the OAM&P features.
They are buying it for other reasons.

If you talk to ATM people trying to convince
them to buy MPLS, its mostly not productive
because they don't want anything but ATM.
Any ATM feature that MPLS doesn't do is a reason
not to use MPLS.

As far as fine-grained QOS, there is no technical
reason why MPLS can't provide it. (aside from
the QOS issues that arise from allowing larger
packet sizes). Its a connection-oriented signaled
protocol.

skeptic 12/4/2012 | 9:27:19 PM
re: Cisco, Sycamore Circling Lucent's ATM Take Frame Relay and brush liberally with NIH. Sprinkle with gratuitous jargon designed to make the same things sound different.
----------------
Or....take frame relay and fix it. Update the
standards to something reasonable and remove
all the "junk" that was bundled with FR but
of no use to many people.

As far as gratuitous jargon, the FR standards
are far WORSE than any of the IETF documents
for MPLS. They are not written for humans,
needlessly duplicate each other (did we really
need three types of LMI?) and are full of
features that nobody uses/wanted.

If the people using FR and the standards bodies
associated with FR had been interested in
improving it, MPLS might not have happened. But
(as with the ATM community) they were not
interested in doing anything or changing anything.






indsavvy 12/4/2012 | 9:27:17 PM
re: Cisco, Sycamore Circling Lucent's ATM one thing misssing from both previous posts. FR is proven and revenue generating---majorly revenue generating. MPLS is still a wannabe, just ask all the MPLS switching product vendors who are now touting ATM on their boxes.
zoinks! 12/4/2012 | 9:27:15 PM
re: Cisco, Sycamore Circling Lucent's ATM >Sycamore would get an instant revenue stream
>which they are not getting right now from their
>current portfolio.
>blah blah blah

Plus, many of the SCMRys jumped ship from Ascend to Sycamore and are well-versed in both the GX/CBX/BSTDX and NavisCore architectures and code.

...now whether they would want to put their hands back into the spaghetti is another story...

Zoinks!
putridrage2000 12/4/2012 | 9:27:04 PM
re: Cisco, Sycamore Circling Lucent's ATM MPLS will only be of use if telcos can efficiently provision services on it that bring to their end users costs savings. If I have a layer 2 Frame/ATM network at a recurring monthly charge of $100, and MPLS cannot bring to me services that are better, or a price that is better, than what I already have, than what good is it to those who actually pay the bills? Remember all the VPN hype? Sure VPN is great for sitting at home on your cable modem and connecting to the office, but besides that, its still pretty expensive and nobody is deploying it. It sure has some niches in the International arena, but for the most part, Layer 2 networks are still the leader.

Yes, ATM as a growth industry is dead, nobody is rolling out a national ATM network these days. But I am sure more and more end users (once again, those folks that have money and pay the bills) as they migrate away from 56k frame relay or T1 frame relay need to go to some technology. Does anyone have any idea how many 56k frame relay circuits still exist? T1 Frame relay? Thats alot of cards that LU can sell into the embedded carrier environment.

I think MPLS will be too difficult to provision for carriers to offer it at a cheap price. But we will see.
brahmos 12/4/2012 | 9:27:03 PM
re: Cisco, Sycamore Circling Lucent's ATM http://digitalmass.boston.com/...

sntwk 12/4/2012 | 9:27:00 PM
re: Cisco, Sycamore Circling Lucent's ATM Both have good points and the problem is how to marry them so that carriers who need QoS or support existing customer solutions with minimum impact. As some one pointed out FR is transported on ATM backbone networks. It is unlikely FR will go away and hence it is unlikely that a FR CPE will be plugged away from ATM and connected to a MPLS switch any time soon.

The bad thing about ATM is the in-band header wasting bandwidth. Imagine carrying an IP packet - ATM header, EtherHeader, IP header - customer traffic. So many headers! Consider MPLS - just one or two labels + IP packet. Consider the same for L2VPNs - MPLS Label(s) + FR traffic , plus managing them is and will be easy.

On the other hand consider providing deterministic QoS (latency and peak/avg rates) - it will be challenge to get MPLS switches to deploy such that it happens. I am sure there are lot more advances that happened in the last 10 years or so that should help MPLS switches provide same or better QoS than an ATM switch can. But it is more a risk reward equation rather than technical issue. Do carriers have the patiences and bandwidth to take on a technology that is developing and taking it through deployment, hardening, maturing process that can be anywhere from 3 to 7 years. An MPLS backbone network can help carriers in the longer run reduce costs both operational and capital investment costs as MPLS equipment will be cheaper and configuring and operating them will be easier.

Both ATM and MPLS can't offer fast restoration by themselves. The underlying SONET/SDH or RPR infrastructure must be designed for sub 50 ms restoration. One can't depend on PNNI or OSPF-TE to help fast restoration. PNNI may have an edge over OSPF-TE as it has hierarchical apporach compared to OSPF. The hierarchical approach is what is used in voice networks and their signaling protocol - the #7. Voice networks can setup calls in few seconds and support thousands of calls per minute and millions of calls a day without an issue. It is not the smartness in the signaling systems - they don't depend on routing. There is no routing in signaling #7. They just pre-design bandwidth (the link sets) for signaling transport and the messages go over a deterministic path. Adding some flexibility to signaling #7 (which is what the B-ISDN folks did or try to do) and using that in an MPLS environment with the switches just providing label switching would be more useful. The problem is inability to seperate label switching from control protocols. They must be treated seperately if only to mimic voice switching + #7.
broadbandboy 12/4/2012 | 9:26:40 PM
re: Cisco, Sycamore Circling Lucent's ATM Verizon



BBboy
network 12/4/2012 | 9:26:38 PM
re: Cisco, Sycamore Circling Lucent's ATM There always has to be a next thing. ATM was the next thing once. Yet even today I haven't seen a widely available ATM svc service from any carrier, worldwide. In fact most commercially available pvc's have little flexibility compared to what the ATM spec's offer.

MPLS just like ATM will emerge in a very simple form, as carriers figure out how to deploy and make money off of the service. All of the bells and whistles of MPLS will be minimized when they hit the end customers.

MPLS good or bad?
MPLS Inevitable. But not near as exciting as all of the hype, GMPLS included.

As for Lucent, keep the business. The investment is over. It's like selling your 10 year old car for $100 when it can carry you to the bank for another ten years. You might temporarily feel better with $100 in your wallet, but you financial statement looks a little better 5 years down the road.
billyjoebob 12/4/2012 | 9:26:26 PM
re: Cisco, Sycamore Circling Lucent's ATM Without further developement of the CBX and GX there is no assurance that any buyer of the Lucent ATM gear will have an inside track to update it - or even that Verizon will expand it. It is unlikely that Verizon will replace their 500s and 550s. It also doesn't assure the buyer they will have the inside track on an MPLS core or overlay network.

The buyer will assume the responsibility of supporting these switches for the next 3 to 5 years on what I can only assume will be very thin support agreements. This is a "2 in the bush" proposition.

This would be a good idea - if Verizon wereactually going to buy anything - but they aren't doing any major network upgrades or changes till they pay their own bills down first.

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