Optical/IP Networks

Lucent Stands Pat

We've been scratching our heads (and other stuff) over here at Light Reading Central trying to work out whussup wit Pat Russo's move to the CEO spot at Lucent Technologies Inc. (NYSE: LU).

Here's what we do know:

    1: Pat just had a remarkably short Kodak Moment™.

    2: The transfer is notable more as an exercise in corporate nostalgia than in strategic thinking. (Yes, the appointment will score points with the Northern New Jersey grey-haired golfer set. No, it won't do anything to improve relations with Lucent shareholders – see Lucent's Next Leader).

What we don't know is Russo's plan for the company's optical networking product lines. Unfortunately, Lucent declined to let Light Reading interview Russo, so we couldn't ask her directly what she has in mind, but she's on record elsewhere as saying that she intends to continue the work of restructuring begun by Lucent chairman Henry Schacht.

Breathtaking vision there, Pat.

Since taking over the reins as interim CEO, Schacht has undertaken an all-out program of cutbacks at Lucent. On one level, that's a good thing, because it lessens the chances that the Big LU will go bankrupt.

On another, it's a very bad thing. That's because Schacht has been way too free with his hatchet. In the process of slimming down the company, he's favored maintenance of old stalwart technologies, while defenestrating the more cutting-edge stuff – IP, metro switching, scaleable ATM – on which Lucent's future depends. This is, of course, classic Lucent thinking.

Coincidentally enough, at the time the Lucent politburo handed down the CEO decision, Light Reading's paid research arm, Optical Oracle, happened to be putting the finishing touches to its latest report, due out later this week, entitled "Big Shots In 2002: Are They Ready?"

Allow me to precis the Optical Oracle’s findings on Lucent’s current product positioning in the carrier voice and data markets:

    Optical transport – Running in third spot behind Nortel Networks Corp. (NYSE/Toronto: NT) and Ciena Corp. (Nasdaq: CIEN). Ciena's hold on the no. 2 position is attributable to it being first with next-generation technology.

    Optical Switching – Getting spanked by Ciena (see: Optical Transport). Plenty of competitors, including Corvis Corp. (Nasdaq: CORV), Sycamore Networks Inc. (Nasdaq: SCMR), and Tellium Inc. (Nasdaq: TELM) are developing disruptive next-generation technologies.

    SonetCisco Systems Inc. (Nasdaq: CSCO) is cleaning up in the next-generation market, and Fujitsu Ltd. (KLS: FUJI.KL) is still a force. Lucent may have a decent shot if it moves some DMX product out the door. But it’s late to market.

    ATM – Still in good shape here. But Lucent just pulled the plug on its next-generation ATM switch development project (see Lucent Bags High-End Switch).

Detecting a trend here?

Any new leadership should be focused on getting Lucent back in a position of strength in several of these technology markets. But unfortunately, in the current environment, that isn’t going to happen. As a repatriated Lucent lifer, Russo is not the person to bring in the foreign DNA necessary to change Lucent’s technology and marketing culture and renew the product strategy.

Here’s my prediction:

    1: Russo will clean up the books further, assuage Wall Street and Lucent’s creditors, and make sure that Lucent stays on track as a lean, mean, bankruptcy-fighting machine.

    2: At the end of 2002, there will be a brief glimmer of hope, with a slight uptick in the telecom market. Carriers will buy a few more of Lucent’s rusty old Studebaker-like circuit switches and perhaps upgrade an ATM box here and there. The numbers will look a little better. Lucent’s share price will crack $10.

    3: Lucent shareholders will realize, belatedly, that the company has no growth plan. No core routers. No market-leading edge services devices. No IP data engineering talent. No next-generation optical DWDM switching platform.

    4: Clang!

In other words, the future now looks bleaker than ever.

At this point, it's worth asking why Lucent's Board of Directors, named by Fortune magazine as one of America’s six worst boards, picked Russo. The answer lies in the titans of industry who make up the board. They hail from Lucent, Agere Systems, Eastman Kodak, Lucent, Xerox, and Lucent (it's worth noting that Xerox and Eastman Kodak also made Fortune's Dirty Half Dozen list). This is not so much a Who's Who of the optical networking industry, as a "Who cares?"

Amidst all of the unknowns, most of Wall Street was typically tepid on Russo’s selection, issuing vague and faint approvals and head nods that sounded a little bit like, “Well, the Pinto's a decent car if you just think about how much mileage it gets – before you get rear-ended.”

Stevy Levy, at Lehman Brothers, is the only analyst saying what he's actually thinking. (Keep in mind that Levy also happens to be one of the few analysts that correctly called Lucent’s meltdown).

“While we continue to view Lucent as an extremely attractive turnaround investment opportunity in the telecommunications equipment market, Lucent's senior management team with only one notable exception is composed of ‘lifers’,” wrote Levy in a research note issued yesterday. “We are also concerned because Pat Russo's long-term vision is an unknown.”

Bingo. Give that man a cigar. And give the Lucent board a clue.

— R. Scott Raynovich, US Editor, Light Reading

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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MKTG_Hack 12/4/2012 | 11:05:40 PM
re: Lucent Stands Pat If Ms. Patty does indeed follow the path of the interim CEO, then it is more likely than ever that Lucent will continue to sell off non-core BUs until they are the leading supplier of imprinted coffee mugs and t-shirts.
obkenobi 12/4/2012 | 11:05:37 PM
re: Lucent Stands Pat I guess "light" reading is an adjective as well.

Although I prefer to lurk, I'll join the fray.

"Optical transport G Running in third spot behind Nortel Networks Corp. and Ciena Corp."

- Is third place all that bad in a shrinking market? NT and CIEN have problems not too unlike Lucent. That order will shift about. LU isn't anywhere near dead there.

Optical Switching G Getting spanked by Ciena... Plenty of competitors, including Corvis Corp. Sycamore Networks Inc... , and Tellium Inc. are developing disruptive next-generation technologies.

- Other than Ciena and maybe Corvis do the others have a prayer? LU still plays here. Look harder.

Sonet G Cisco Systems Inc. (Nasdaq: CSCO - message board) is cleaning up in the next-generation market, and Fujitsu Ltd. (KLS: FUJI.KL) is still a force. Lucent may have a decent shot if it gets DMX out the door. But itGs late to market.

-RIGHT! DMX has been out for months. Much better box than Cisco. Why not any words about the carriers pulling 15454 OC48 boxes out for OC192? or pulling them out because of manageability and heat? DMX has a few customers and a lot of interest. As far as Fuji, they have a base, but it's hardly next gen. A combo flash 600 & 2400 renumbered to a 4300 or something.

ATM G Still in good shape here. But Lucent just pulled the plug on its next-generation ATM switch development project (see Lucent Bags High-End Switch ).

- Lucent's in better shape than you think. Not all the Cascade people left.

As far as the ever present moaning about the lack of IP networks and routers in Lucent, take another harder look:

Accesspoint and SurePipe: Not glamorous or famous as cisco, but they do the job well at a fraction of the cost

Springtide: It works. It works well. There are customers with them. Argueably better than shasta since it has a line of other routers and a firewall the interoperate with it.

LSMS VPN Firewall (Brick): No one has anything like it. Is Cisco PIX ICSA certified yet? Ever try to hack one? Don't bother, you can't. BTW: The customer list for this box is veritable whos who of secure organizations.

Stinger - Not an IP box but it's #1 in SDSL ports and Like #2 in ADSL. It's a DSLAM that thinks it's an ATM switch. You can even out a router blade in it if you want.

It's annoying to watch the criticism fly. Which other vendor has as much stuff to offer a carrier?

As an LU employee, I worry about NT and Alcatel, maybe cisco to a lesser extent. But not all that much.

The CLECS are gone, probably never to be back like before. With them will go the lions share of the startups, since these days I doubt they can survive the wait to get a product through a carrier lab let alone OSMINE.

We have the products, these products have great roadmaps that our CUSTOMERS get to see. We have great people. As far as the "seat warmer" and Clueless Executive population is concerned we're no worse off than ALA or NT, the other big guys.

Lastly, I've come up against Ms. Russo's people A few years ago when I was at competing with LU. They were formidable adversaries.

It's my recollection that they were then like Cisco is now.
manoflalambda 12/4/2012 | 11:05:34 PM
re: Lucent Stands Pat LR spoketh:
Optical Switching - Getting spanked by Ciena... Plenty of competitors, including Corvis Corp. Sycamore Networks Inc... , and Tellium Inc. are developing disruptive next-generation technologies.

Lucent is still in the game. 4 words (or is it
two): LambdaRouter and LambdaManager (and Unite for that matter... ) Geez, two years ago wasn't everyone saying all Optical switches were "disruptive technologies..." What does LR now consider a disruptive Switching technology? (Gluing an OEO to OOO?)

MKTG_Hack 12/4/2012 | 11:05:34 PM
re: Lucent Stands Pat Big names from the outside are not always better. Look at Unisys. They brought in Larry Weinbach a few years ago and the place is still going down hill. It may be the only tech company that actually shrank during the boom years.

Look at Kodak!

Then look at Chambers - who was he before Cisco?

My point is that the insider/outsider issue isn't as important as
leadership style - ego-centric or customer focused
market understanding
guts to make the tough calls and fire cronies if necessary

I'm not to invested in LU but I'm going to sit on the little I have and see what she does/says in the first 100 days.
lightmaster 12/4/2012 | 11:05:34 PM
re: Lucent Stands Pat LR,

While skepticism is warrented, you guys are missing a few important points.

Your analysis of their optical and data product lines was OK, but you forgot to mention Lucents wireless business, where they are doing extremely well.

Second, when a patient comes into the hospital, you have to adddress the life threatening issues (loss of blood, heart stopped, etc.) before moving on to any other issues. Strategy going forward can wait a few weeks, or months. It's right for her to focus on bleeding first.

Third, the woman has now been CEO for a few days. According to rumors, she was only approached in December. So, you want her to start spewing her vision and strategy for the company now? Would't it be smart for her to, say, think about it for a few minutes first?

Finally, what's she supposed to say? "I've looked at the strategy that Henry and the board laid out, and it sucks. Even though it may make our creditors and Wall Street nervous, I can't wait to make radical changes to it."

I was hoping for a big name from the outside as well, and I am also skeptical about Pat. However, her initial lack of "visionary" statements means nothing.. yet. If in 3-6 months the "execution" story is is still all that we're getting, that's another story.

As an aside, it's interesting to me how Russo is getting nailed much harder than Dunn from Nortel. Come on guys, not only was Dunn an insider, he was the CFO, a lifetime accountant, the chief bean counter! The guy probably is still sitting in meetings wondering what their Intellectual Property (i.e. "IP") strategy has to do with the Internet.
Scott Raynovich 12/4/2012 | 11:05:33 PM
re: Lucent Stands Pat obkenobi,

Actually, I think all of your points prove our point. That is, Lucent has some very good technology, but when it comes to getting the word out on the street, marketing, and selling the products, they have done a poor job.

If you're saying, "Lucent has some fine products they just happen to be #3 or #4 in a lot of the markets"

I say, exactly!

As for the DMX, you are right that it's shipping, that was a poorly worded statement and I have fixed it.
obkenobi 12/4/2012 | 11:05:33 PM
re: Lucent Stands Pat What Lucent Employees expect these days is to get bad press no matter what we do.
My point was that we have a deep and wide product line that few companies can compare. Is it the total bleeding edge always? no. But it works as well or better than most, The product lines even integrate together as well or better than most.

Executive "vision" is overated by the way. I've seen it both ways - forward thinking ahead of it's time and myopic clinging to a failed dream.

I'll step in and apologize for the entire company for not being as hip and cool as Cisco or any given startup.

But then again,
Age & Guile will beat youth and skill every time. I wouldn't count us dead as yet.

Steve Saunders 12/4/2012 | 11:05:33 PM
re: Lucent Stands Pat "Is third place all that bad in a shrinking market?"

Well, yes. It's a terrible position for a company that has been a world leader in optical networking technologies.

I take your criticism seriously but I don't really see anything to justify saying the article is lightly researched. Yes, it's critical, but good grief! What does Lucent -- and its employees -- expect?

farmboy 12/4/2012 | 11:05:32 PM
re: Lucent Stands Pat Hey Scott,
You're off-base on Cisco owning the next-gen Sonet market.
Nortel owns 48% of the next-gen Sonet market to Cisco's 23% -- according to a report published in December by Yankee Group. It is the most comprehensive report to look specifically at that market.
lightmaster 12/4/2012 | 11:05:32 PM
re: Lucent Stands Pat Scott,

A lot of Lucents problems with marketing come from their history. As a sole supplier to AT&T in many areas, there was no need to market, either inboud or outbound. No need to find out what the customer wants, just walk accross the building and ask. Better yet, don't bother to ask because they'll buy whatever you produce. No need to promote the products, AT&T will buy them no matter what.

After Lucent split off, things had to change. I think that Lucents sales organization made the adjustment to a competitive environment quickly. (Trust me, I was a victim). In fact, their fierce competitiveness is what kept them going, and also what caused problems as well (e.g. vendor financing).

When it comes to marketing, I think they still real issues both in giving proper direction to their labs and in promoting the products and company to the outside world.
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