Lucent Harbors UMTS Hope
The company has been focusing on "near-term opportunities" for the past 18 months or so, targeting the large service providers with a more focused approach, stated CFO Frank D'Amelio at the Lehman Brothers T3 conference in Orlando today. "It hasn't been easy, but it has been rewarding. The wheels have wobbled but they haven't fallen off," he proclaimed, in a neatly packaged soundbite.
The Lehman telecom team believes that part of this new focus will include partnerships to fill in holes where Lucent no longer has a product line. The analysts think Lucent will be open to working with companies that have been traditionally viewed as major rivals, such as Cisco Systems Inc. (Nasdaq: CSCO) for IP routers -- a possible relationship highlighted by Unstrung a few months back (see Springtide Ebbing Away?).
In the meantime, Lucent's wireless wing is banking on a continuing prominent role in the CDMA infrastructure market, worth about $12.7 billion in 2002 and set to rise to $13.8 billion in 2005, according to Lucent estimates. According to the soon-to-be-available Wireless Oracle report on the global CDMA equipment market, Lucent is currently the market leader, with about 46 percent of the market, and has won almost half of the announced contracts for CDMA 20001xRTT networks (worth $11.5 billion in total).
In addition to this dominant position, the company also has strong ambitions in UMTS. According to the Lehman analysts, it does not forecast any revenues from this line of business in its 2003 financial year (October 2002 to September 20, 2003) -- but it is planning a new "attack strategy" for this market.
To date, Lucent has tried to convince wireless carriers with 3G UMTS licenses that it can help them deliver early 3G revenues from business users, and it's still banging that drum (see Lucent Smells Demand for Data). This is based on a strategy of refusing to wait for handsets and instead developing PCMCIA cards with partners to deliver WCDMA network infrastructure and cards for laptops, allowing high-speed data access for "road warriors" (see Novatel, Lucent Team on UMTS). Lucent has been trialing this concept with Spanish incumbent Telefónica Móviles SA and other companies this year.
"For a mass consumer-market launch, the operators need a variety of affordable, reliable handsets that can be offered at a reasonable price, and they need them in millions, not thousands. We don't think this will happen until the second half of 2004 or even 2005," Carlos Mira, the president of Lucent's Mobility Europe business unit, told Unstrung earlier this autumn.
"So handsets are driving the timescales for the carriers that are focused on the consumer markets. But 3G is all about data, and enterprise users want greater access speeds than those offered by GPRS, which is good for transaction-based services. Enterprise users need more, and our solution offers them this to their laptops. They don't even need to learn how to use a new device or work with different applications," added Mira.
But it seems this message has failed to win carrier support. Hence the need for a new (currently unexplained) strategy -- which could simply be a more aggressive promotion of the same story. Even without UMTS revenues in the current fiscal year, D'Amelio is still bullish about Lucent's prospects of breaking even at $2.5 billion in revenue per quarter from all business lines. "We will return to profitability," he told the T3 delegates. "We have unparalleled network know-how, and aim to be the leading supplier of network equipment to operators," he stated, adding that Lucent's aim is to help carriers reduce operational costs and maximize revenues.
"I am making no predictions," D'Amelio declared, "but it's clear this market will come back." We know that's a kinda wooly statement, but that's still a prediction, isn't it?
Still, he was on a roll. "It's a case of when, not if. The global telecom market is worth $125 billion, and the underlying traffic demand is still rising." There are 1.1 billion wireless subscribers in the world today, according to D'Amelio, and this number will rise to 1.6 billion by 2005. "The overcapacity in networks will be used up, and capex will stabilize and eventually rise at mid-single-digit growth levels," he predicted (while making no predictions, of course).
From talking to operator customers, Lucent believes capex levels will return to be 15 percent to 20 percent of service revenues, and that capex will be driven by operators looking to create new services and drive revenues while reducing operational costs. — Ray Le Maistre, European Editor, Unstrung
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