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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
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...
seeallwan 12/4/2012 | 9:29:04 PM
re: Lucent Clarifies Product Strategy re: TMX, is that the NX64000?

Yes it is...failed router, now failed switch.
broadbandboy 12/4/2012 | 9:29:04 PM
re: Lucent Clarifies Product Strategy Did anybody wonder about the apparent contradiction in these two statements?

"Circuit switches: Russo said customers are evolving their 5ESS voice switches to packet-based networking."

and,

"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."

-----------------------------

Hmmmm. Customers are "evolving" the 5Es towards packet switching, but have no interest in softswitches? Or maybe she means they have no interest in Lucent softswitches?

BBboy




Belzebutt 12/4/2012 | 9:29:05 PM
re: Lucent Clarifies Product Strategy TMX, is that the NX64000?
hrdhtr 12/4/2012 | 9:29:06 PM
re: Lucent Clarifies Product Strategy It's the end of the line for the 6.4Tbps IP Core Router turned 160Gbps Multi-service switch that never passed a packet on a live network.
It certainly led a storied existence here at LR.
seeallwan 12/4/2012 | 9:29:06 PM
re: Lucent Clarifies Product Strategy re: It certainly led a storied existence here at LR

It never made it as a router, what made anyone think changing labels would turn it into a switch?

160Gbps Multi-service switch my arse. 16 single OC48 ATM slots add up to (16 x 2.5 = 40) a 40Gbps switch. Glad LU canceled the MSC25000 (OZ) switch, then cap all the Cascade products and invest in TMX880 with no real network management.

Add the SpringTide products to the mix and you have more of the same ZERO dollars.

PSAX in general is holding it's own, but with it's centralized architecture, lack of scalability and lack of network management, it's only a matter of time for this as well.

So, the red headed step child in Westford MA (CBX/GX) continues to be deployed, despite Lucents relentless efforts to kill it.

IMHO approx. 18-24 mos of constant cancellations, lack of vision, novice development in IIDC and arrogant politics in Indian Hill will make things very very difficult to further develop MPLS, POS or GigE on the CBX/GX products.

Any bets on Westford being closed down in 2003? The products may still be around, but hedging my bets on IIDC and IH taking all the work?

In light of Election season, my vote would be to have all LU execs held accountable, be forced to exit there positions and exit the Data space as well. They may have Bell Labs, but they don't know Data, period!!!
hiddentiger 12/4/2012 | 9:29:22 PM
re: Lucent Clarifies Product Strategy This announcement does little in the way of telling us how much future R&D money will be spent on any of these product catagories. For all practical purposes- they could be keeping any number of these product catagories alive, just for cash cow purposes.
HD
optiplayer 12/4/2012 | 9:29:22 PM
re: Lucent Clarifies Product Strategy Nice summary futureisbright. This is more of the same for LU.

Particularly amazing was that they again set the performance expectations high for 2 quarters out. Yes, the next Q will be down but then revenue if going to jump ~25% sequentially in the Q after that (from $2B to $2.5B). Gimme a break. They have just set themselves up for failure again. This projection was met with significant doubt by the analysts but it shows that LU management still hasn't learned from their mistakes.

Of course it could be that they had to throw the $2.5B number out there because a realistic projection would lead folks to conclude that they will exit 2003 with far less than the $2B in cash they are projecting which would further call into question their ability to survive....
futureisbright 12/4/2012 | 9:29:23 PM
re: Lucent Clarifies Product Strategy Looks like LU has decided to shave across the board rather than cut off the rocks around its neck.

I am confident that wireless CDMA does continue to be a bright spot for the present and the future, but their GSM and UMTS need to be deep sixed. In GSM, they have minimal market share, and NO traction in the only growth market left, the US. In UMTS, they have no hope to ever achieve a market share that would allow them to approach breakeven.

What then is the point of keeping these businesses? For GSM, LUGÇÖs one major customer (30% of the installed base) is T mobile, whose parent Deutsche Telekom is also a major optical customer. It appears that LU will compound losses in wireless and optical to avoid annoying their money losing customer.

For UMTS, they have no market credibility left. Should they end up deploying equipment, the volumes will not be there to sustain the revenue levels necessary for breakeven. When analysts are writing off Alcatel, Motorola, and Nortel, two of which have greater contract announced share, it is hard to imagine Lucent coming back from, literally nowhere.

Then perhaps, when all is said and done, these businesses have effectively been written off; Pat just has not announced it yet.

For their wireline business, clearly the 5E and related items are cash cows worth milking. The installed, in North America in particular is compelling. It may be time though to cut off some of the less profitable applications and markets (e.g: the European version, or the GSM/UMTS version). Maybe thatGÇÖs what Pat is doing.

Network management clearly continues to remain a strength, and a competitive weapon, especially in the home market.

Optical continues to be nice and sexy technology and to bleed red, like the rest of the optical industry. Will LU have the stomach to keep it until the rest of its portfolio returns to the black? ItGÇÖs an even call that Pat is just postponing the pain of cutting it off

In all, a conservative plan, based on what was announced. Not a turnaround plan.
lickmeyster 12/4/2012 | 9:29:24 PM
re: Lucent Clarifies Product Strategy I am not necessarily talking about marketing, but executives accurately assessing whether a business has a near term potential to be cash flow positive. Lucent doesn't have two years to turn things around. It is going to be very difficult to cut 10,000 people and not cut any businesses. Some of the businesses they are in, must be bad investments given their overall financial results.
Fhunton 12/4/2012 | 9:29:25 PM
re: Lucent Clarifies Product Strategy SemiConduct Guy,

I mean in terms of product portfolio, lucent is cutting almost 1/5th of workforce but still maintaining same products, from what i've been reading over the last few weeks was that there were going to be "deep cuts" in product portfolio, maybe I picked it up worng, but was expecting different type of announcements...Lucent could end up in situation where supporting alot of products, not enough staff and not enough money, why not do one or two things right instead of doing ten things crap......
gigeguy 12/4/2012 | 9:29:26 PM
re: Lucent Clarifies Product Strategy > 10,000 job cuts is not "cutting deep"???? What is?

Fhunton has a very good point - they announced 10,000 cuts, but didn't cancel any products! Where are the cuts coming from??????
SemiconductorGuy 12/4/2012 | 9:29:26 PM
re: Lucent Clarifies Product Strategy 10,000 job cuts is not "cutting deep"???? What is?
Fhunton 12/4/2012 | 9:29:27 PM
re: Lucent Clarifies Product Strategy From what I can see, this is all still the same, where are the 10k cuts going to come from if no major product cut has occurred. I thought LUcent had to "cut deep" this time. Still the same company......
SemiconductorGuy 12/4/2012 | 9:29:29 PM
re: Lucent Clarifies Product Strategy What about the Anymedia products?
puzzled 12/4/2012 | 9:29:36 PM
re: Lucent Clarifies Product Strategy Although I loath the execs in Jersey, I like the fact that they did dump the stuff that deserves it:
* Wavestar crossconnects are crap compared to Alcatel
* their softswitch was such a piece of crap that a veteran personal hygene marketeer would not be able to sell that sucker to a blind rubberducky on crack

Good to see the Ascend/Cascade/Springtide stuff made it (this far). The Internet call diversion application Russo mentions has been solved for a long time with the excellent Ascend (Stratus) ICD solution (afaik Telefonica, Deutsche Telecom, WorldCom and BT).

Any carrier who had the "pleasure" of implementing LU's various feable attempts at element managers fully understands why Russo & friends decided to keep Navis. If you have circuit/optical management tools customers want to shoot you for selling to them then why not just take the successful stuff from the data side and do the ol' "add some and relable end-to-end solution" trick. Not gonna work but at least the Navis people get to keep their job for a while.

The Psax melts when you whisper MPLS near it so I have no idea how they think they will add MPLS to a box that's already running extremely low on cycles & juice. 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. And they would probably think we would fall for it. Ha!

Happy hunting,
Puzzled
reoptic 12/4/2012 | 9:29:36 PM
re: Lucent Clarifies Product Strategy Product set seem a lot like Marconi. No mention of the TMX so maybe it is on the block? For a company so big in voice the convergence plans aren't very clear. Seems they have punted on IP completely...
Iipoed 12/4/2012 | 9:29:37 PM
re: Lucent Clarifies Product Strategy They should probably turn to negative marketing instead of keeping a positive outlook. That's how to keep your job, yeah right!
lickmeyster 12/4/2012 | 9:29:37 PM
re: Lucent Clarifies Product Strategy For a company that is so optimistic about all of their products' relative market position, they sure are putting out crappy results.

thescalesofjustice 12/4/2012 | 9:29:38 PM
re: Lucent Clarifies Product Strategy I think they are just keeping Navis around as it provides some general management of their boxes. They might be better to offer a MIB browser. The last time I saw the guts of this beast there wasn't much there. I can't say it's a network or element management strategy. I think it's just something they have that works a little bit for the H/W they can sell.
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