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
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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.


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.)
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