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Lucent cancels switch plans

The struggling telecommunications equipment giant has canceled plans for a new product that was to be an upgrade for one of the company's best-performing divisions.

Struggling telecommunications equipment giant Lucent Technologies has canceled plans for a new product that was to be an upgrade for one of the company's best-performing divisions.

The product, called the MSC 25000, was first introduced this past June. A Lucent spokesman confirmed the company has canceled development of the new so-called multi-service switch, which was to enter tests with service provider customers this month. The company said the change of heart was part of the company's overall restructuring, a portion of which is focused on what product areas to invest in.

"I'm surprised; that's a product they really need," said Kevin Mitchell, analyst with industry consultants Infonetics Research. "(The current technology) is aging rapidly and their revenue has been going down each quarter for these products."

Lucent said they would soon offer a different type of product, to be announced by the end of the year.

The change, however, may only add to the confusion surrounding Lucent as it tries to repair itself after numerous strategic and financial missteps. Lucent's internal woes are magnified by a telecommunications market in the throes of a violent contraction. Numerous potential customers are teetering on the brink of bankruptcy or are otherwise scaling back their network construction plans. Those conditions immediately affect equipment suppliers such as Lucent.

Nevertheless, Lucent's expected upgrade was considered a key area the company would continue to focus on. In a June press release announcing the technology, Lucent hailed the MSC 25000 as its "new flagship product" for its market.

Competitors such as Alcatel and Marconi, as well as start-ups such as Equipe Communications, are likely to benefit from Lucent's change of plans, according to Mitchell.

"The program being canceled is great news for our company--this is the incumbent with the largest installed base," said Bob Sullebarger, vice president of marketing for Equipe.

Tough decisions at Lucent
Others view the move as necessary, since Lucent would have been late-to-market with the technology and may want to put its development efforts into more cutting-edge equipment.

"Clearly, Lucent has to replace this product," added Chris Nicoll, director of infrastructure analysis at industry watchers Current Analysis. "I would be more concerned if we didn't see products being cut," he said. "Strangely enough, this is a positive move for Lucent. There's a bit of a silver lining."

What is significant about Lucent's decision is that the technology represented a big upgrade for Lucent's sprawling base of customers it inherited from its acquisition of Ascend Communications. That acquisition was heralded as a sign that Lucent was betting big on data and Internet networking technologies. Lucent finalized the more than $20 billion purchase of Ascend in June of 1999.

In the aftermath of that deal, the Ascend division at Lucent has remained one of its fastest-growing businesses, even as the company's older product divisions floundered and the company fell on hard times. Canceling such a product only underscores just how serious Lucent's fiscal straits and resulting restructuring are, according to analysts, since the current Ascend technology is now showing its age.

Various market research reports in recent months have indicated that Lucent remains No. 1 in the product category. "At least they had solid revenues for this technology, quarter over quarter," Mitchell said. "They were doing well in this market. They did historically lead it."

Switcheroo
The MSC 25000 networking switch was viewed as a significant upgrade because it offered 10 times the capacity of current technology. A "multi-service" switch allows a network operator, such as AT&T, to consolidate various functions into one piece of equipment. Such multi-service capabilities let a customer send voice, video and data signals through one switch based on newer "packet" technology.

The technology also supports various networking technology types, such as asynchronous transfer mode, or ATM, which is popular with service providers, as well as older frame relay technology, which is still used for many corporate connections.

"Lucent has been reviewing its product portfolio as part of its restructuring," said a Lucent spokesman. "These are tough decisions and we're making them to maximize the opportunity for our large service provider customers."

Lucent said it would instead offer new technology that is more focused on IP, or Internet Protocol, as well as sophisticated new technologies called multi-protocol label switching, or MPLS, which lets a service provider use more sophisticated methods to manage their Internet traffic.

Analysts surmised that Lucent would likely utilize technologies it acquired from start-ups Nexabit Networks and Springtide Networks to craft the new switch.

"Lucent remains committed to the multi-service market," Lucent spokesman Mike Alva said. "It intends to continue that leadership."