Lucent Technologies' recent announcements clearly signal that the company is in an extensive rebuilding mode and indicate an apparent realization that its structure was not yet sufficiently tuned to the needs of the marketplace.
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Is the worst over for Lucent?
In several areas, Lucent has multiple products and cannot explain why, making it difficult to sell them profitably, even if they are the best. Most of Lucent's carrier customers, especially incumbents, have an embedded technology base and face extensive problems that factor into their decisions on network upgrades and converging packet-based networks together with the public-switched telephone network architectures.
Lucent's major competitors in the infrastructure market address this need by positioning their products in the context of an evolutionary path that often contains entire suites of equipment. Lucent has limited itself in this sense by marketing individual pieces of the network.
Where the challenges lie
Lucent has had difficulties in several areas and success in a few.
Not long ago, Lucent led the world in traditional optical equipment as the sole vendor offering a complete product portfolio that included SONET, digital cross-connect and dense WDM (wave division multiplexing) systems. Lucent was an early innovator in optical cross-connect systems and had acquired the Chromatis NG Metro optical platform to help address the lucrative optical access market. However, Lucent has failed to articulate--and execute--a critical end-to-end, next-generation optical network vision.
In optical equipment, Lucent is in the unenviable position of needing to sell cash-cow traditional equipment that has a limited migration to next-generation optical networks, thus making Lucent an easy target for new entrants.
The outlook in optical fiber is far brighter--the big challenge is filling orders. Lucent recently introduced a new low-loss, broad-spectrum fiber called AllWave, which appears to solve the last-mile, future-proofing challenge. Lucent could benefit from investigating Corning's strategic alliances with Nortel Networks and Cisco Systems to find opportunities to exploit its optical fiber and equipment businesses.
Significant among areas in which Lucent has maintained its leadership is the market for multiservice platforms. Those devices are used at the core and edge of the network to handle multiple forms of traffic using ATM or frame relay techniques. This market is under threat from "everything-over-IP" approaches using technology from companies such as Cisco Systems, Juniper Networks and Avici Systems. Although Lucent has made acquisitions that could potentially position it well for this evolution (e.g., Nexabit), it has not yet moved strongly in this market.
Lucent and other infrastructure suppliers are walking a very fine line between meeting the short-term expectations of the financial market and the ability to build long-term equity for the benefit of shareholders and the world economy. This line is further sharpened by the current downturn in capital spending in the telecommunications sector.
From deregulation to deconstruction
Lucent and its equipment competitors operate in deregulated markets. These markets will not revert to the regulated monopoly environments of the past. Therefore, companies like Lucent must find efficient operating models that allow adequate financial performance while affording enough breathing room to innovate and develop for the future.
A possible, perhaps even probable, outcome of Lucent's ongoing efforts is a substantial deconstruction of the company. This deconstruction began with the spin off of Avaya (the enterprise networking business) and continues with the creation of Agere (the separate microelectronics business). Discussion has now begun concerning the sale of the optical fiber business.
Gartner Dataquest believes that Lucent's moves toward deconstruction are driven primarily by concerns over shareowner value arising from its recent bleak stock performance. For this reason, some deconstruction steps may not be in the best long-term interest of shareowners or the infrastructure market.
The question that remains is this: Will Lucent make the right choices? Gartner believes it would be a mistake to underestimate Lucent's ability to mount a formidable comeback. It begins this effort with an extensive arsenal of capabilities, including a wide variety of capable products, virtually unmatched intellectual capital (in the form of Bell Labs), a vast customer base and a well-developed support infrastructure (e.g., professional services and financing).
(For related commentary on Lucent and its strong wireless solutions, see TechRepublic.com--free registration required.)
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