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Optical/IP

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
www.lightreading.com
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alexchilton 12/4/2012 | 9:28:04 PM
re: Lucent Clarifies Product Strategy "You can't be serious when you make these type of "lab trial" analogies, can you? I've been involved with the "T" account for over 6 yrs now and NEVER saw the NX platform in a live network period!!!."

I saw it. It matters not that you didn't.
" "T" will only deploy a switch in there live network when they've successfully completed extensive and brutal lab testing, which usually last 12 months."

4 months in this case.

"Ask any vendor out there. So I canGÇÖt see how GÇ£at one pointGÇ¥ the NX did anything except GÇ£lab trialGÇ¥ for a month."

can't see, didn't see.

"By the way, your correct in that it may have lasted a month, because GÇ£TGÇ¥ threw it out after it only did 256 byte packets at 50% line rate in a single-area, partial mesh scenario, in which route
reflectors and abr didnGÇÖt even work. I did some checking."

Absolutely incorrect.

"Then again, who cares, whereGÇÖs the NX platform now, oops, I mean the TMX....DOA my friend."

No argument, friend.

Alex.

seeallwan 12/4/2012 | 9:28:17 PM
re: Lucent Clarifies Product Strategy re: hrdhtr wrote "never passed a packet on a live network"

re: This is not correct. At least at one point in '99, 2 NX6400s passed packets @ oc48 along the
NE corridor on T's network, participating in their iBGP using OSPF, for over a month. Worked
well.

You can't be serious when you make these type of "lab trial" analogies, can you? I've been involved with the "T" account for over 6 yrs now and NEVER saw the NX platform in a live network period!!!. "T" will only deploy a switch in there live network when they've successfully completed extensive and brutal lab testing, which usually last 12 months. Ask any vendor out there. So I canGÇÖt see how GÇ£at one pointGÇ¥ the NX did anything except GÇ£lab trialGÇ¥ for a month.

By the way, your correct in that it may have lasted a month, because GÇ£TGÇ¥ threw it out after it only did 256 byte packets at 50% line rate in a single-area, partial mesh scenario, in which route
reflectors and abr didnGÇÖt even work. I did some checking.

Then again, who cares, whereGÇÖs the NX platform now, oops, I mean the TMX....DOA my friend.
broadbandboy 12/4/2012 | 9:28:25 PM
re: Lucent Clarifies Product Strategy Here is what I would like to see.

Some company pulls the plug on the 4Es and 5Es in a part of the network and replace them with some nextgen packet switch voice gateways and softswitch controller. Cost justify cap expense with ROI from reduced operational costs from space, power, maintenance, trunking, etc. over say a 24 month period, with operational savings adding to the bottom line after that.

If it works, continue replacing 5Es until network is all packet, no TDM. Opex savings over a multiyear period should be immense.

I know it will take years, but they have to start sometime, right? Lets face it, service provider margins are going right down the drain, so what have they got to loose?

What do you guys think?

BBboy



Gandalf 12/4/2012 | 9:28:26 PM
re: Lucent Clarifies Product Strategy Re: It means that LU softswitches aren't working.

Honestly, there are very few companies that have any clue how to implement a real softswitch. Lucent obviously gave up. NortelGÇÖs Mr. Potato Head solution does not even come close to resembling a softswitch. Alcatel tried and came up a bit short and Tekelec only has a few ones in the field. Sonus has had some market successes, but lately came up dry and besides, their solution does not scale. Santera probably has the best technical solution, but no visible market traction. Winforia has had better luck in the wireless space, but typically they have to team up with a Gateway partner to be even considered in C4 / C5 space. Taqua can probably compete in the market for single T1s, but thatGÇÖs it.

It will take some major player finally taking a plunge based on the density and price advantages before the SS make it into the mainstream
arak 12/4/2012 | 9:28:28 PM
re: Lucent Clarifies Product Strategy LU softswitch is what runs Level3 voice switching. It did quite well for its time. Then the goobers running the 5ESS program panicked at the thought of a cost effective switch and killed the project internally. The people who ran the LU SS program jumped ship and formed Winphoria sensing that there was more money to be made in the wireless MSC market with SS than in the wireline market. Meanwhile the SS at L3 was left to rot with just a semblance of support from LU. LU's name raises a stink ever since in the SS market. LU SS is mostly smoke and mirrors now. blah ... blah ... blah ...zzzZZZ
alexchilton 12/4/2012 | 9:28:31 PM
re: Lucent Clarifies Product Strategy hrdhtr wrote "never passed a packet on a live network"

This is not correct. At least at one point in '99, 2 NX6400s passed packets @ oc48 along the NE corridor on T's network, participating in their iBGP using OSPF, for over a month. Worked well.

Success since then has obviously been elusive.

Alex.
futureisbright 12/4/2012 | 9:28:54 PM
re: Lucent Clarifies Product Strategy It means that LU softswitches aren't working.

Clearly softswitches at some other companies are showing promise.

Softswitches are a difficult concept to sell in a capital constrained environment, especially when you have perfectly good hardswitches doing the job just fine, thanks.

Therefore the evolution at the core from hard to soft, TDM to packet will have to wait for someone to actually show tangible benefits. Could be a while


Litewave 12/4/2012 | 9:28:57 PM
re: Lucent Clarifies Product Strategy Are there any other kind of switches that do voice to packet?

Softswitches aren't Gateways. They're computing platform based call servers.

Nortel softswitches seem to be doing quite well...

The key word here is "seem".

Nortel masquerades everything under the Succession banner even when its just a simple ATM switch being sold into Carrier account for CES application.

Their softswitches are hardly doing well.
mboeing 12/4/2012 | 9:28:59 PM
re: Lucent Clarifies Product Strategy "Since the B-STDX is ominously missing from Russo's data products, maybe they will relable it to become the almighty Psax box that sports MPLS."

I was under the impression that B-STDX was canned in summer 2000. Well, the announcement was "no more h/w development, s/w development reduced to maintenance only".

/MAB
Belzebutt 12/4/2012 | 9:29:03 PM
re: Lucent Clarifies Product Strategy Are there any other kind of switches that do voice to packet?

Nortel softswitches seem to be doing quite well...
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