Leaving the past behind: Streamlined Lucent to home in on carriers, the edge

Lucent Technologies took steps last week to shed some of its lower-growth legacy holdings in an effort to focus more intensely on the complex and expanding service provider marketplace.

The company announced that it will divest its $8 billion PBX, Systimax structured cabling and LAN-based data businesses in what it expects to be a tax-free spinoff to shareholders.

The decision does not remove Lucent from the enterprise market altogether but rather relieves it of a slow-growth equipment load. Instead of supplying enterprise gear, Lucent plans to intensify its focus just outside the enterprise border on the edge of the public network, where virtual private networks (VPNs) and other software-driven applications reside.

The company also will continue to provide network planning and integration through its NetworkCare Professional Services division.

"The new company provides the technology, the products and the support inside the enterprise, and Lucent delivers designed and planned networks, manages those networks and delivers VPNs and aggregated switching fabrics at the edge of the networks as service providers move to provide more than access and transport," said Rich McGinn, chairman and CEO of Lucent.

Lucent also will be able to focus more resources on lucrative technology lines, such as optical networking, Internet infrastructure, wireless and microelectronics, McGinn said. Those carrier-focused areas represent the highest profit opportunity for Lucent and its biggest rivals in the networking equipment realm.

"It's one of the reasons that some of our competitors are moving so aggressively into the service provider space," McGinn said. "They see the enterprise looking more like a utility function and the service provider space looking like one that's much higher growth."

There has been speculation in the industry that Lucent would issue a tracking stock for its optical business, but the company has remained quiet on the subject. The logic of that effort would be to further showcase Lucent's assets in that high-growth business, said Jim Andrew, vice president of Renaissance Strategy.

"It's very sexy technology, and maybe they feel the value of it isn't being recognized in the marketplace," Andrew said. "By tracking it, its growth potential could really be recognized."

As for Lucent's exit from the enterprise, Andrew said that although the company has made several acquisitions that have brought it newer generation enterprise equipment, the sales force issues involved in trying to balance divergent enterprise lines are too complicated.

"They bought some significant companies in the digital enterprise market, but they haven't gone anywhere because they're these tiny little tails on this huge PBX dog," he said. "You can't have an enterprise sales force that sells PBXs and desk sets come in and try to sell these new products and compete against the likes of Cisco. They're always going to lose."

Donald Peterson, vice president and chief financial officer for Lucent and former head of Nortel Networks' enterprise business, will become president and CEO of the new company, and former Lucent chairman Henry Schacht will become chairman.

The company will start with 34,000 employees and 90% of the Fortune 500 companies as customers, but it faces other challenges.

"We'll have to find a name, launch a brand, form a corporate structure and continue to meet the needs of our customers," Peterson said. "That's what we did four years ago."

Lucent will retain its Bell Labs R&D facility and the Bell Labs brand, but several thousand Bell Labs employees will move with the spin, McGinn said.

The enterprise business will have the same opportunity other vendors have to license technology and intellectual property from Bell Labs, McGinn said.