Lucent to outsource telephone, wireless manufacturing

(Telephony) Lucent Technologies will sell off two U.S. manufacturing plants and then outsource the work on a contract basis to the purchaser(s) as the first major step in a strategy shift announced last April.

The two plants—in Oklahoma City, Okla., and Columbus, Ohio—employ approximately 8,400 workers between them and are responsible for the manufacture of traditional telephone network equipment and wireless equipment, respectively. The plan is for these plants to continue manufacturing this equipment once the sale is complete, which Lucent anticipates will happen in the next six months.

The shift from in-house to contract manufacturing is intended to give Lucent greater flexibility, which will help it improve its time to market.

“When a new technology becomes available, we can give it to a contract manufacturer who will use the folks at Oklahoma City and Columbus, but they also may have other facilities that they can gear up to help us get that first initial rush out,” said a company spokesperson. “Or maybe a product will start out small, and as it builds momentum, we can incrementally add on [capacity].”

Lucent believes that another plus of outsourcing is that it will allow the company to focus its internal energies on the development of more sophisticated technologies.

“We want to focus our efforts on our more advanced, very technical types of manufacturing, because we think we can add value there,” said the Lucent spokesperson. “The reality is that the contract manufacturers over the past several years have themselves become very sophisticated. So … it makes sense for us to take advantage of it, and then focus ourselves on more high-end manufacturing, like fiber.”

Lucent is making the right decision, according to Bob Atkins, vice president, Mercer Management Consulting.

“Shrinking their asset base is not a bad idea. They can much better use those assets for other purposes and it allows them to invest in what they’re really good at, which is technology innovation. So this is a positive,” he explained.

“The key thing is they have to focus on technology development, not manufacturing. It’s fairly well documented that they have fallen behind in this area, but don’t underestimate them. I think they can close this gap. They’ve come back before.”

Another reason Lucent may be embracing an outsourcing strategy is that the marketplace for voice-related products is in decline, according to Maribel Dolinov, senior analyst with Forrester Group, who predicts a dramatic decrease in the production of traditional telephone equipment.

“They only reason you would own your own manufacturing plant is that you couldn’t find the capacity to manufacture these kinds of parts in the timeframe you would need,” she explained.

“For example, let’s say you were coming out with a new line and you needed manufacturing for that line. You might not be able to get a subcontractor to switch out for your new line in the appropriate timeframe. However, I don’t foresee in telephony the need to come up with a new line that would require a manufacturing shift that a contractor couldn’t deal with.”