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 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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