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Lucent kicks off gear thrust

The networking market the company has entered will be anything but gentle for the telecommunications hardware company that was once the equipment arm of AT&T.

OAKLAND, California--Days after completing the largest merger in networking industry history, Lucent Technologies chief Rich McGinn is being briefed on plans for a pending worldwide company event to welcome its $25 billion purchase, Ascend Communications, into the fold.

The introduction will include a song and dancers twirling around him, McGinn is told. "All you need to do is clap," notes a Lucent event staff member.

"Who are these people?" wonders McGinn. "They'll be gentle," assures the handler.

Yet the market that Lucent has entered will be anything but for the telecommunications hardware company that was once the equipment arm of AT&T.

With the addition of Ascend--a company Lucent agreed to purchase in January of this year--an emerging battle will likely enter a full tilt phase, with the firm vying for Internet service provider (ISP) and communications carrier dollars along with the likes of data giant Cisco Systems and telecom gear maker Nortel Networks.

Lucent boasts a market capitalization of $175 billion and a yearly revenue stream of more than $30 billion, but it is still learning to walk as a company, a remnant of its days as a Ma Bell business unit, according to McGinn.

The chief executive took some time with CNET News.com before a satellite event to gathered throngs of Lucent and Ascend employees here and across the globe to discuss the vision for his re-fashioned $9 billion broadband networks business, what the company can learn from a Silicon Valley-style company like Ascend, and the truth and lies concerning its core technology--circuit-based network switches that are used to route phone calls across vast voice networks--as opposed to newer technology alternatives like Ascend's intended to shuttle Internet "packets" of information around.

CNET News.com: What can Lucent learn from Ascend?
I think Ascend is a company that's been enormously successful by virtue of bringing passion and quick decision-making and execution and making those a hallmark of what they do and how they do it. As well, Ascend is famous, or notorious, for its never-say-die attitude--a very hotly aggressive company from the top down. We find this is very well aligned with how we think about our business opportunity.

We believe that by embracing the best of the things that Ascend does we can go one step further and make this company operate and behave as if it is a much smaller firm.

What do you say to those who claim that circuit technology is dead. Is Cisco, one company promoting such a view, getting ahead of themselves?
I'd rather not speak to whether Cisco is ahead of themselves or not, but I can tell you that this year in circuit switching for us, at least, the number of ports, the number of terminations, the volume of business in our circuit switching is up 30 percent year-over-year. I have a little cognitive dissonance thinking about a business that's growing 30 percent for us and one that is dead. Some people might say its dead but, I'll tell you, it seems to have a few lives.

Will that revenue growth be strained as new networks are built using Internet technology?
What I think you're going to see is a shift in the value and that is why we introduced [gateway] software so that those that have these enormous installed bases can take advantage of the converging worlds of packet technology and circuit technology in a very efficient manner and earn on those assets as they evolve those networks.

You need different, or alternative, architectures depending upon the business strategy of the individual service provider. That's what we're delivering. There is no "one size fits all." Despite the marketeering that's going on about "this is the only way to move forward," it seems as if the customers may have a different point of view.

Does the settlement with Cisco concerning your patent lawsuits usher in a period of détente between you two?
Cisco is a very good company. They're the best selling machine I've seen. They're a very strong niche competitor. We expect them to be a good competitor going forward. That's what I say every single time. It's very boring. I don't get involved in hurling brick-bats. Cisco's also a good customer of ours. We sell to them out of our semiconductor business. We expect to continue and with their success we hope to sell them more and we hope to serve them well.

You say you can grow 3 to 5 percent above the industry average. Who are you taking share from?
The mid-sized companies are, in many instances, failing to keep up broadly with the growth in the marketplace. They are growing less rapidly or more slowly than others. They are not doing nearly as well as ourselves or Cisco, as examples.

They have not to date demonstrated the ability to grow and quite honestly that is probably is reflected in their market caps. They remain strong in their core positions with their traditional customers but they haven't demonstrated, to date, that ability to move into new spaces and generate substantial new growth in the top line and the bottom line. I think you can look at all the usual suspects in that regard.

You are very positive about future growth. Is it a case of there being too much opportunity out there and everyone can win here?
We are benefited by the primary demand that's in the marketplace from both enterprises and individuals in their personal and professional lives for communications networking, whether that's broadband or narrowband these days. It's becoming part of the fabric of how we conduct our personal and professional lives. All that is occurring even in advance of the broadband pipes being made available on a ubiquitous basis, which is going to lead new applications developers to come online and develop applications that are really bandwidth hogging. There's no real reason to do that today because the bandwidth is limited in its availability and relatively expensive.

What's happening is the notion of networks is changing in a very radical and fundamental way. It used to be it was access, connection, and transport, and then reversing it. Now you have all those things, but you have the network rapidly evolving into a knowledge-based network where information is stored in the network and you access, retrieve it, and manipulate it, and then send it on with variations to it or augmentations to it. That change, along with the introduction of broadband technology and deployment, is radically changing whole industries or segments.

You've said you're getting better at growing than you were before. Could you expand on that?
Lucent wasn't a business when it was part of AT&T. It was a set of Activities--disparate activities. The aggregate growth of that business was less than 10 percent the year before we went public [in April of 1996]. What we did was look at the best benchmark companies that we could find.

We told ourselves we had to change the pulse rate or heartbeat of the business in a material fashion so that we could grow in a rapid fashion and take advantage of the opportunity out there which would require us to think and behave differently. We've been learning how to do that as each quarter goes by so that very rapid growth gets institutionalized--in a positive way, not a pejorative way--and becomes part of the fabric of how we think and how we behave today.