Marconi in Turmoil
For BT Group plc (NYSE: BT; London: BTA), today was its 21st Century Network D-Day -- Decision Day (see BT Unveils 21CN Suppliers).
For one of its long-term suppliers, Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), it was also D-Day -- Disaster Day (see BT Shuns Marconi for 21CN). As a result of not being chosen for any part of BT's next-generation network plans, Marconi's share price plummeted by nearly 40 percent, and almost half the firm's U.K. workforce now face the prospect of losing their jobs.
Marconi had been expected to win at least a portion of the access equipment award, and by some, including the team at Lehman Brothers, it was fancied to pick up business in the metro and transmission categories as well. But it landed zip, and saw its share price on the London Stock Exchange fall by 190 pence, more than 39 percent, to 292 pence.
The news appeared to catch Marconi by surprise. "This was not the outcome we expected," says spokesman Skip MacAskill. "We went into this with our eyes open and felt our chances were very good, as we performed well in the technical trials.
"The outcome is a reflection of how the economics in the telecom sector are changing. Other suppliers had deeper pockets and went to levels we couldn't, in good conscience, match. We weren't prepared to go to a loss-making position. We had a threshold and we stuck to it, and we understood the consequences."
He adds that the impact on Marconi's business in the medium and long term means that up to 2,000 of Marconi's 4,500 U.K. staff are likely to lose their jobs. That figure could increase if Marconi's network services contracts with BT aren't renewed (see BT Renews $656M Marconi Deal). Marconi currently employs between 10,000 and 11,000 staff worldwide, according to the company.
And, MacAskill says, there's always the opportunity to win new services work from BT as a result of the 21CN project. "That's something we'd be interested in, and services already accounts for about half of our current BT revenues." About a quarter of Marconi's revenues currently come from work with BT (see Marconi Reports Q3 Results).
With BT so important to Marconi, though, shouldn't Marconi have gone to almost any lengths to maintain a long-term relationship with the carrier? MacAskill's response: "That's an easy stance to take when you're standing outside the company. We need to consider the value we can deliver to customers and shareholders when bidding for business. If we become a loss-making business then the shareholders are left holding the bag."
The news that Marconi is frozen out of 21CN came as a surprise to almost everyone, including Heavy Reading analyst at large, Graham Beniston. "BT's decision not to include the Marconi softswitch or multiservice access node [MSAN] is a major shock that will obviously have major repercussions. While the Fujitsu and Huawei MSANs are very good products, it does appear that price has been a major factor in this decision," says the analyst and former Marconi man.
The decision also came as a jolt to Marconi partner Sonus Networks Inc. (Nasdaq: SONS), which was in line to provide its media gateway technology as part of the Marconi package (see Marconi & Sonus Team for Next-Gen and HR Unties Sonus/Marconi Tie-Up).
Talking to Light Reading in London this morning, Sonus CTO Michael Hluchyj was clearly shocked (and dismayed) to hear the news. "It's a surprise," he says, "but Marconi will continue to be a good partner for us. We have other opportunities with them. Time will tell. There may be other opportunities with BT in the future."
The markets were more interested in today, though, as Sonus's share price fell 40 cents, more than 10 percent, to $3.44.
The stock performance of those vendors named as BT 21CN suppliers varied. Alcatel's (NYSE: ALA; Paris: CGEP:PA) share price suffered after its first-quarter results, masking any impact of its involvement in the metro category but omission from the access. It fell $1.21, more than 10 percent, to $10.55.
Siemens AG (NYSE: SI; Frankfurt: SIE), Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERICY), Lucent Technologies Inc. (NYSE: LU), and Juniper Networks Inc. (Nasdaq: JNPR) each saw a small dip, but Ciena Corp. (Nasdaq: CIEN) jumped more than 8 percent to $2.19.
— Ray Le Maistre, International News Editor, Light Reading