The Future of Lucent

The glory days are long gone for Lucent Technologies. In the wake of massive layoffs, huge revenue losses and a battered stock price, 2003 will be a year for the vendor to lick its wounds and pick up the pieces. For a company Lucent's age and size, however, the changes necessary for turnaround will be tough to stomach — especially for employees who have grown accustomed to doing things the old Lucent way.

Chairman and CEO Patricia Russo knows that Lucent must change, and she addresses that need with a cool, calm demeanor. Regardless of how horrible the industry fallout has been, Russo said telecom remains fundamental to the global economy. “The fact of the matter is, the communications industry continues to be a large one,” Russo said.

As for Lucent's continued overhaul, big changes are coming in the form of services. “In terms of what I would call a refinement in our focus, we are absolutely intensifying our focus in the services area,” Russo said.

Many industry observers have said that some of the large vendors should become more focused on services rather than equipment, just as IBM did when its hardware business started deteriorating. In that vein, Lucent's new service focus will include everything from basic engineering and installation to professional services such as network optimization and outsourcing.

Lucent is also planning to rely much more heavily on partnerships than before, a wise move for a company looking to streamline its product lines. Russo conceded that Lucent is even open to partnering with competitors such as Cisco Systems and Nortel Networks.

But Russo stopped short of saying the company will become a niche player. “We are not at all backing away from our commitment in the mobility business or the wireline business,” she said. “We are just recognizing there is an opportunity for us to extend and advance our position.”

Lucent anticipates that sales will be down 10% to 15% in 2003. And considering the vendor's significant head count reduction, it is likely that more product lines will have to go. But the company's financial restructuring does not rely on an industry turnaround, Russo said, and growth is expected to start again in 2004.

“Lucent will survive; it's just a question of what form it will survive in,” said Sam Greenholtz, senior analyst at CIR. “They need to concentrate on their strengths, which are primarily in Sonet and Bell Labs, and they need to get rid of the dead parts of the business.”

Yet Greenholtz cautioned that while services may currently be the company's short-term solution, they aren't Lucent's strong point.

Certainly, however, the most important step for Lucent now is to forget the past — one in which the company seemed to control almost every product in the market — and concentrate on a far different future: one that demands a divergent suite of products and services. Only then will Lucent reclaim its glory days.