Lucent clears a path, Cisco creates 11

In spite of decimated budgets and a bleak short-term outlook, large carriers remain an essential target of Lucent Technologies and Cisco Systems, which both announced the details of reorganization plans last week.

Lucent, which had made some progress with upstart carriers, claims it can re-emerge from its financial abyss now that it has been freed to use the $9.7 billion write-down to clear the way as it enters the second phase of its restructuring plan (see Figure).

"We have a plan to break even in 2002 and [to reach] industry metrics in 2003," said Henry Schacht, Lucent's Chairman and CEO. 

Though not in the same dire straits as Lucent, Cisco Systems also is refocusing on its largest customers by scrapping its line-of-business organization to centralize and streamline product development into 11 technology units, which previously included overlapping enterprise, commercial and service-provider units. No layoffs are included in the changes, but the vendor announced the departure of Kevin Kennedy, former senior vice president of the defunct service-provider unit. At the same time, the company expects to decrease its work force through attrition.

"Inevitably, we will experience some cost savings by removing redundancies, but this is less about cost savings and more about speed to market," said Bill Nuti, Cisco's senior vice president for service-provider operations worldwide.

In a statement, CEO John Chambers said, "Kennedy's departure does not signal a change in our commitment to [the service-provider] space."

Though different in nature, the two reorganizations are clear indications that neither company is confident about the short-term carrier market, though Cisco appears to be relying more on its bread-and-butter enterprise customers. 

"The competitive local exchange carriers have gone away, and the major providers are pulling back on the reins," said Bill O'Shea, executive vice president of corporate strategy and business development for Lucent. 

Still, the big accounts make up 75% of the total capital spending. Whether either company can win back loyalties is debatable, said Mark Lutkowitz, vice president of optical network research for CIR. "There are people at Verizon who really don't think Lucent is the future, but it's the operations [people] that really decide. They have a heavy amount of influence," he said. 

And while Lucent does have a history with established, larger service providers, some of their past tactics may haunt them.

Lucent "took advantage of the optical fever and the telecom fever and screwed a lot of people that were loyal to them, while some guys at the top made out [very well]," Lutkowitz said. Despite Lucent's shortcomings, Lutkowitz believes the company has the definite ability to survive. 

Schacht vaguely noted that Lucent will concentrate primarily on wireless, data and optical products, though the question is which product lines Lucent has pegged as shortcomings. "I'd bet money on the Nexabit and Chromatis products, where they have really fumbled," said a source close to the company.