Is a Lucent/Juniper Deal in the Works?
Tomorrow, Lucent is scheduled to brief industry analysts in Boston on general product developments and strategy. And some analysts are hopeful it will also spill the beans regarding potential partnerships.
“I’m expecting something to be said here tomorrow,” says one industry analyst who will be attending tomorrow’s meeting, asking to remain unnamed. “I’ve heard that the Juniper deal is definitely in the works, but Lucent usually doesn’t like to announce anything like that until the ink is dry.”
Lucent remains tight-lipped on the subject. Ray Zardetto, vice president in public relations, says that no new product information will formally be announced at the analyst event, and he declined to comment on rumors about any potential Juniper/Lucent agreement.
That said, it has become clear recently that Lucent is looking for partners in a number of key product areas, and core IP routing is definitely one of them. The company essentially killed off development of all its IP products in October 2002 when it announced it had ceased development of the TMX880 core IP/MPLS box and the Springtide 5000 IP Service Switch (see Lucent Clarifies Product Strategy).
Just two weeks ago, Lucent announced it would resell Cisco Systems Inc. (Nasdaq: CSCO) wireless IP gear (see Lucent & Cisco: Together at Last). During the company’s 2002 fourth-quarter conference call the next day, CEO Patricia Russo said the company would be evaluating and deciding which company to partner with for core IP wireline equipment (see Lucent Toes the Line).
Juniper’s name has come to the forefront as analysts began speculating on which vendor might be named the partner. Most analysts reject the notion that Cisco will get this partnership. For one, Lucent and Cisco still compete in certain product areas like optical systems, ATM, and softswitches. A reseller relationship with Lucent that could provide Cisco with key contacts inside a regional Bell operating company could backfire on Lucent. It might give Cisco the added edge it has been looking for to get its own products into RBOC accounts.
“Cisco is a potential competitive threat,” says Simon Leopold, an equities analyst with Merrill Lynch & Co. Inc.. “The Lucent people might be thinking that it isn’t wise to give away any potential business in the RBOCs to Cisco.”
The wireless portion of the business is a different story. Cisco doesn’t offer any products that compete with Lucent’s wireless products. On the flip side, Juniper was likely ruled out early as potential IP wireless partner, given that the company has a restrictive reseller and development agreement with Lucent competitor, LM Ericsson (Nasdaq: ERICY).
But on the wireline side, Juniper looks like the better candidate, say analysts. The two companies do not compete directly on any product line. The partnership would certainly benefit both companies, as Lucent would gain a breadth of core and edge IP routing products to resell, and Juniper would gain an important channel partner. Reseller relationships with Ericsson and Siemens AG (NYSE: SI; Frankfurt: SIE) have become increasingly more important to Juniper. Each partnership counted for more than 10 percent of the company’s revenue in the past quarter. The company has a reseller deal with Nortel Networks Corp. (NYSE/Toronto: NT) as well, but that has not contributed as much as the other two, say analysts.
“While Juniper has been able to crack some large incumbent U.S. service providers on its own, such as BellSouth Corp. (NYSE: BLS) and Qwest Communications International Inc. (NYSE: Q), Lucent could provide a better position into SBC Communications Inc. (NYSE: SBC), AT&T Corp. (NYSE: T), and Verizon Communications Inc. (NYSE: VZ),” wrote Nikos Thoedosopoulos, an analyst with UBS Warburg in a research note published on January 3, 2003, regarding Lucent’s partnership strategy.
There are other, smaller players in the core IP router space, but these seem less likely candidates as Lucent reseller partners. They include: Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7), Caspian Networks, Charlotte’s Web Networks Ltd., Chiaro Networks, Hyperchip Inc., and Procket Networks Inc..
“There’s an outside chance that these companies could get some of this business,” says Stephen Kamman, an analyst with CIBC World Markets. “Investors shouldn’t assume that the only players in this market are Cisco and Juniper.”
“You have to believe they are talking to everybody,” says Steven D. Levy, an analyst with Lehman Brothers. “And I doubt any of these contracts will be exclusive.”
— Marguerite Reardon, Senior Editor, Light Reading