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Lucent's Poor ATM Numbers Confirmed

Light Reading
News Analysis
Light Reading
9/22/2000

Light Reading has taken some heat in the past week for publishing figures from Infonetics Research Inc., which showed that Lucent Technologies Inc. (NYSE: LU) lost ground in the ATM switch market in the second quarter of this year (see Lucent Losing Grip on ATM Core?)

In particular, we were criticized for not following up on Lucent's claim that research from other analysts, notably Cahners In-Stat Group, painted an entirely different picture. Cahners' figures, Lucent said, showed Lucent's market share growing while that of its main rival, Nortel Networks Corp. (NYSE/Toronto: NT), was shrinking.

So, we've followed up, not just with Cahners but with a couple of other market research companies as well -- The Dell'Oro Group, and Synergy Research Inc.

Guess what? All three analysts back Infonetics' general conclusion -- that Lucent had a lousy second quarter in the ATM switch market. However, that might not mean that much. Year-on-year figures are much more significant, according to analysts; but those also show Lucent losing market share, albeit at not such an alarming rate.

Let's start by looking at the quarterly figures that got Light Reading into hot water with some readers.

Lucent, it turns out, was quoting Cahners' figures for the first quarter, not the second quarter.

It's easy to see why. Lucent had a great first quarter, although it looks as though it was at the expense of a correspondingly poor second quarter. Some analysts suspect that Lucent's sales staff asked customers to sign purchase orders early to engineer the appearance of a bouyant first quarter.

In other words, Lucent's second quarter figures may not be as bad as they look, just as its first quarter figures may not be as good as they look. That certainly jibes with Dell'Oro's numbers:

Multiservice WAN Switch Worldwide Revenues, 3Q98 - 2Q00* Cahners' latest figures paint a similar picture. They show Lucent's ATM switch market share (counting core and edge switches as well as carrier and enterprise sales) fell from 33.3 percent to 27.3 percent from the first to second quarter 2000. Revenues dropped about 13 percent from $290 million to $252 million.

In comparison, the shares of competing vendors rose, in line with typical seasonal fluctuations in the telecom equipment market (see Cisco: Sailing Into Stormy Waters?). Nortel now has 21.9 percent of the market, according to Cahners. Cisco has 21.1 percent; Alcatel (including Newbridge), 18.6 percent; Marconi, 9 percent; and other vendors 2.1 percent.

Cahner's verdict? "Lucent is having huge attrition and supply chain problems. But they're regrouping. I think they'll get their act together," says Laurie Gooding, senior analyst at Cahners. "Lucent has a strong position with service providers," she adds. Synergy Research takes a similar stance. "It's not fair to judge Lucent overall based on the figures from one quarter," says Jeremy Duke, its president and founder. "Regular volatility is typical of this segment."

Duke's data shows Lucent's revenues from ATM carrier switches fell 13.5 percent between the first and second quarters of this year, bucking an upward trend among other vendors:

Service Provider Multi-Service ATM WAN Switch Revenues (Core and Edge), 1Q and 2Q 2000 As noted, analysts take a lot more notice of annual comparisons in the telecom equipment market, because they're less susceptible to seasonal fluctuations.

So, now for the bad news: Duke says Lucent's overall share of the worldwide market for service-provider multiservice ATM WAN gear has dropped 5 points since 1999, from 36.7 to 31.9 percent. That may not sound as dramatic as its big drop in second quarter revenues, but it's probably a lot more damning.

-- Mary Jander, senior editor, and Peter Heywood, international editor, Light Reading http://www.lightreading.com

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