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Optical/IP

Lucent Takes the Gloves Off

Lucent Technologies Inc. (NYSE: LU) is getting scrappy, clawing its way back into some incumbent business, to judge from some recent activity.

Lucent has won two telecom equipment deals in recent weeks, a metro optical networking whopper with Verizon Communications Inc. (NYSE: VZ) and a smaller digital loop carrier contract with Bell Canada. Lucent hasn't announced or commented on either deal, but the news signals that despite its ongoing reorganizing, the telecom giant is serious about pricing to win and hitting up large carriers for more business.

The first new deal is said to be a three-year agreement for Lucent to provide Verizon with metro optical networking gear, according to two industry analysts close to Lucent. The deal is a significant win for Lucent, though its value is hard to pin down. An earlier report by TheStreet.com put the contract as high as $1 billion. Light Reading's sources say it could be as low as $100 million or as high as $500 million.

"You didn't get a comment from us last week and you're not going to get one this week, either," said Wendy Zajack, a Lucent spokeswoman.

Whether Lucent talks or not, a deal between it and Verizon is hardly surprising, given the two companies' close relationship. Sales to Verizon accounted for about 17 percent and 14 percent of Lucent's revenues in the years ended September 30, 2001 and 2000, respectively.

Earlier this year, Verizon bought Lucent's WaveStar TDM gear for a network deployment in metropolitan New York. That buildout also included Lucent's OC3 (155 Mbit/s) and OC12 (622 Mbit/s) Sonet add/drop multiplexers.

More surprising was a recent revelation that Lucent has beaten Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA) in a contest to provide digital loop carrier equipment to Bell Canada. That deal was revealed by the analysts at Deutsche Bank, who cited sources at Bell Canada in a note to clients last week. Analyst George Notter, the report's primary author, writes that the deal is estimated to be between $30 million and $45 million annually.

The analyst note also mentioned an anecdote that Lucent recently knocked 50 percent off the price of its Stinger DSLAMs in order to get Bell Canada to consider giving it some of the DSLAM business it had been giving Alcatel.

While the progress with big carrier customers is a positive for Lucent, the price slashing may only irritate investors who worry that Lucent's profit margins are dropping too fast.

Lucent shares were down $0.20 (2.56%) to $7.61 in early afternoon trading Wednesday.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
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rjmcmahon 12/4/2012 | 7:26:06 PM
re: Lucent Takes the Gloves Off The question is, how long will the big telco guys hang on to an aging installed base? Time is running out.
_______________________

I don't think we know the answer to this yet. Technology says time ran out years ago but bw demand growth is driven by data traffic where revenue generating biz-models have their challenges.

In the case of the RRs it took a while before the major revenue generating consumable, oil, moved to optimized distribution technologies, pipelines. The irony is that John D managed to use RR rights-of-ways to build his pipelines. The next major consumable, coal, is still being transported on RRs today. (The pulverized coal pipelines never were widely adopted.)
broadbandboy 12/4/2012 | 7:26:08 PM
re: Lucent Takes the Gloves Off Daveman writes: "... Core ATM is on the outs once again but it seems to have some life - another plus for Lucent."

Core ATM does have some life, but is it really a plus for Lucent?

A bit of history-- Lucent bought its way into the market with the $20 billion paid for Cascade. Sure, Lucent was number one, but analysts like YG say market share is in decline. Other vendors with new and improved products are getting ready to eat Lucent's lunch in both core and edge. If you're an Lu customer, nothing new is coming down the pike. The question is, how long will the big telco guys hang on to an aging installed base? Time is running out.

I'm interested in other opinions, comments.

BBboy



Ranger 12/4/2012 | 7:26:09 PM
re: Lucent Takes the Gloves Off You are correct!

I've always said that you could have the best damn tank in the world (like the M1A2 Abrams tank) but if you didn't have a competent and trained crew operating the machine, then all you have is a 70 ton paperweight.

Lucent may have good products but if they don't have the right people to support and sell, then all you have is a 70 ton paperweight.

I'm not saying that they are dead. They just need a serious jolt of tough leadership.
manoflalambda 12/4/2012 | 7:26:17 PM
re: Lucent Takes the Gloves Off ONG's one hope was the Lambda Router designed with 1024X1024 ports, which has yet to make any money. They canned the Lambda Router "lite", which was supposed to be a scaled down version

The 1024 isn't dead. "lite" configurations are still in the works as well.

LambdaUnite, LambdaRouter and then LambdaXtreme and LambdaManager look to be a strong foursome.

Salute,
Manoflalambda
flanker 12/4/2012 | 7:26:18 PM
re: Lucent Takes the Gloves Off Optical Ethernet would be layer 2 ethernet. Read "VLANS". You can't talk IP without talking "ROUTER" or layer 3.

That wasnt the question. The question was whether you can set up a backbone without a SONET mux, and the answer is yes. Several vendors accept GiG E interfaces for metro optical networks. I have no idea why CSCO calls this IP + Optical. It probably has something to do with the fact that they manufacture a funny thing called a router and they can sell you both the edge and the core gear without dicking around with SONET.
Light_Headed 12/4/2012 | 7:26:20 PM
re: Lucent Takes the Gloves Off
I ask you to consider short-term and long-term outlook for Lucent. Short term is a joke. The only reason Lucent is surviving is because of legacy equipment like SONET and DACS. Everyone loves to bad mouth this part of Lucent, but at the end of the day, it is what pays the bills. Look at ONG for a second. Lucent does not have an IP Router nor has plans to build one so whoever mentioned that Lucent will compete in the IP/MPLS space is clueless. ONG's one hope was the Lambda Router designed with 1024X1024 ports, which has yet to make any money. They canned the Lambda Router "lite", which was supposed to be a scaled down version. Their DWDM platform is worse with OLS 400G being given away at cost/fire-sale and their future hopes with their next-gen DWDM is ridiculous, because it is based on Ultra-Long-Haul (look at Corvis). Would you or would you not expect that the next-gen system is more expensive at distances where OLS 400G competes? It is basically common sense to know that a system designed to go 4000km with O-E-O should and will cost more than a system design for <1500km. ONG's only hope is taking the OLS 40/80G product and turning into a metro product. Just remember that Lucent has chalked up 2 metro failures already; one internally developed product called AllMetro and of course the infamous acquisition of Chromatis for a cool $4.5B. I don't think we even need to mention wireless with all of the problems in ONG.

I think everyone should put aside the fact of product quality or competitiveness for Lucent and focus on the key issue; management capability. Since McGinn and Hopkins departure, do you really think the culture has changed at Lucent? Absolutely not. All of the management there is nothing but former AT&T good ole boys that want to suck off of each other all the way to the top. I saw first-hand Jeong Kim's initiative to revolutionize ONG by reorganizing into BU's, but placing incompetent management to run these BU's as well as the fact that they all are products of the former RBOC monopoly, what do you expect? Consequently, Jeong Kim's bitter departure resulted because he was powerless with all of idiots running the BU's underneath him and the fact that he did not understand optical technology. It is called "knowledge is power" and without knowledge of each BU, he was powerless. Not once was any attempt made to bring in heads of BU from outside, which is perplexing for me to understand. My attempts as a consultant in helping Lucent improve cash flow was a joke. When someone cannot even read a Balance Sheet or an Income Statement, how can they expect to make a difference there?

Long-term I would predict the demise of Lucent unless they get some new blood at the top. They need someone like Jack Welch or John Chambers who will take no prisoners and not tolerate the in-bred culture that exists there. You can talk about current products all you want, but it is management that leads a company out of bad times. Everyone I know still there does not see any change happening at the ground level. Talk about employee reductions all you want, but this is not what will make Lucent turn the corner. It is called good management with strong financial discipline and customer focused products. They currently have neither.

For the people still hanging onto Lucent, I suggest you spend less time surfing on lightreading and try to do some honest work. The company could sure use it right now.

Just remember Lucent employees, Lucent is not far behind Enron. Take note. Products do not kill companies, cash flow does. Take a look at Global Crossing these days.

Best of luck and long live Lucent!


Light_Headed
Bill Johnson 12/4/2012 | 7:26:26 PM
re: Lucent Takes the Gloves Off -"We finally know who Harvey is working for".

Although Harvey seems to be pro Lucent, he is not working. I stick to my original hunch that he is a jaded by-product of RIFs.

If I am wrong, he has absolutely no social life since all he does is surf LR in order to get a rise out of people, which he is very good at.

dowdog 12/4/2012 | 7:26:37 PM
re: Lucent Takes the Gloves Off 63k as of 12/01. Will be reduced to 56-7K. Necessary to fulfill the phase II.
Daveman 12/4/2012 | 7:26:38 PM
re: Lucent Takes the Gloves Off I won't get too hyped. May be something interesting here but I doubt we'll hear about it until March. It will be interesting to see:

How will the economy look towards the end of Mar 02?

What will LU's top line look like then? If Sept still the target for profitability?

I would say LU is sideways (around $6-7) until then. If some cool products are announced, spending is under control and restructuring is finished... I'd say March might be the next time we see some improvement in this stock. LU: Not for the Impatient! Anyone who like's this stock has to be a risk taker and in it for the long haul...
Daveman 12/4/2012 | 7:26:38 PM
re: Lucent Takes the Gloves Off Optical Ethernet would be layer 2 ethernet. Read "VLANS". You can't talk IP without talking "ROUTER" or layer 3.
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