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Farewell, Lucent

Ray Le Maistre
11/30/2006

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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DNA-Lorrd
DNA-Lorrd
12/5/2012 | 3:16:46 PM
re: Farewell, Lucent
I agree there was an open culture and I enjoyed my time in Breinigsville, which is now used by Cyoptics I believe. But there was a lot of politics. The team of the late Ogawa that worked on 10Gb/s prototyping (field trial in 1993/1994) was heavily criticized. It was largely ignored that there were other carriers (than AT&T) which did have new fiber without PMD problems and large business opportunities were missed. Lucent jumped to late on 10Gb/s, and Nortel made billions. Actually, 13 years later, 10Gb/s is still a sweat spot.
SolitonWave
SolitonWave
12/5/2012 | 3:33:38 AM
re: Farewell, Lucent
Interesting to notice that with the recent mergers the center of mass for telecom equipment vendors (Carrier market) has definitely shifted East: the top 3 telecom system vendors are now based in Europe (Alcatel-Lucent, Ericsson-Marconi and Nokia-Siemens).
Hope this brings a bigger and better European (and non-US) coverage from LR.
gadfly
gadfly
12/5/2012 | 3:33:37 AM
re: Farewell, Lucent
News flash to Bell Labs
Cut the budget, cut the budget....
Sorry guys, it was great while it lasted.
GAD
Pete Baldwin
Pete Baldwin
12/5/2012 | 3:33:33 AM
re: Farewell, Lucent
Sorry guys, it was great while it lasted.

Pretty much, and in some ways that's been the case for a while. I mean, yeah Bell Labs still operating -- you can see some of the quotes in the story, the 100-Gig research articles, etc. -- but I don't think the environment is the same.

I like Saffo's point: What happens to basic research? It's no longer a priority in the U.S., it seems. Does the "Bell Labs" kind of work now become the purview of Asia -- and what does that mean to long-term U.S. competitiveness?

Lately the answer is to point to Google and its "20% projects" and say startups can take care of innovation for us ... but I still think there's a gap, a zone of pure research that's not going to be tapped by the usual business model. Whether that's trouble or not, I guess we'll find out.
SolitonWave
SolitonWave
12/5/2012 | 3:33:30 AM
re: Farewell, Lucent
melao,
It goes both ways... For incremental innovation the market is the pusher, for disruptive innovation, research pushes. In several areas research is still years ahead of market.

Craig,

Again, I claim: "telecom goes East". And instead of discussing this (eventually disagreeing) I still hear (yet again) about BellLabs. Does anyone has a clue about what Nokia+Alcatel+Siemens+Ericsson are doing on the research side? A lot. And additionally they will get a big slice of the 10 billion EUR that European comission is spending on Telecom research for the next 7 years (7th framework programme).
melao
melao
12/5/2012 | 3:33:30 AM
re: Farewell, Lucent
Reasearch is being driven by the market expectations on technology. The one who delivers what thje market wants wins.
I may be wrong, but in the old days, the technology in the market was a result of the research, and depending on what was researched, the market adopted the technology.

I mean, nowadays it looks like the market is ahead of research and not the the other way around.
DarkWriting
DarkWriting
12/5/2012 | 3:33:29 AM
re: Farewell, Lucent
Regarding research funding, sounds like the latest case of socializing the risk and privatizing the rewards. Typical for the USA. US corporations are waiting for the government to pay for all the research and then walk away with the profits (e.g. pharmaceuticals).

It seems that this US administration isn't ponying up the $$$ these days (too busy pissing away $$$ in Iraq) so the companies are being outcompeted (or simply losing to more positive attitudes) by their European counterparts who are playing a similar game but have governments that provide some of the research Euros.

DW
Pete Baldwin
Pete Baldwin
12/5/2012 | 3:33:29 AM
re: Farewell, Lucent
SolitonWave -- I don't disagree with your point about the "center of mass" moving east (that's a great way to phrase it, btw). But being U.S.-based, I can't help being drawn back to the Bell Labs question. In the U.S., those kinds of playgrounds for basic research seem to be drying up.

I realize Nokia et.al. have their own research, and that Europe funds this stuff ... and if they've got the same free-association kind of environment of Bell Labs (and PARC and IBM Almaden, etc.) -- then great. That doesn't change the situation over here, where folks are beginning to think business has lost interest in outfits like that.
milliman
milliman
12/5/2012 | 3:33:28 AM
re: Farewell, Lucent
The beginning of my last message was mangled. I meant to say, "The beginning of the end of Lucent began with divestiture."

I should have done more than checked the spelling of my message.
milliman
milliman
12/5/2012 | 3:33:28 AM
re: Farewell, Lucent
The beginning of then end of what was Lucent began with divestiture. Western Electric/Bell Labs was not organized like your typical public company. By nature of the monopoly competitive forces did not guide them. The Bob Allen & Co. directed divestiture left the company void of management talent.

AT&T Network Systems emerged a market leader in all product categories. Top, mid, and lower level management was arrogant and inexperienced. Many Bell Labs managers ended up in top positions at Network Systems. This is how McGinn, Fiorina, Buchner, and others rised to to the top while other talent like Hawley and Bosco went on to entrepreneurial endeavors. Talent fled while the hot shots destroyed the company.

Alcatel grew in size and stature by purchasing Lucent's competition. George Hawley, while at Optilink/DSC/Alcatel, developed the market leading digital loop carrier beating SLC 2000. Rockwell/Alcatel developed a better DCS than Lucent. Nortel continued its dominance of the Class 5 switching market while Alcatel was succeeding overseas. Innovation was waining because management did not know how to apply the superior talent in Bell Labs.

By the time Russo took over it was too late. Lucent was dying. She did not have the innovative or management leadership to rebuild the company. She was merely a caretaker until a suitable purchase could be arranged.

In a way the purchase by Alcatel is appropriate because the genesis of Alcatel had its roots in the old AT&T. At various times throughout AT&T's history it created foreign subsidiaries that the U.S. Government forced it to divest. That is how Nortel, NEC, and other competitors got started. Too bad that most of the technology leadership that the "old" Lucent had will be lost.

There may never be another institution like Bell Laboratories, but its legacy will live on. I owe the beginning of my career to Bell Labs. It was the best school I ever attended. Long live its memory.
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