More tech firms decide smaller is better

Lucent Technologies' decision to spin off its slow-growth businesses, and Cabletron Systems' move to break itself into four companies both signal an evolution toward more focused operations.

3 min read
In the communications business, breaking up is easy to do.

Lucent Technologies' bid to crystallize its core mission this week by spinning off its slow-growth businesses, and Cabletron Systems' recent move to break itself into four companies both highlight an evolution toward more focused operations.

"It may well signal a new trend in the way businesses deal with their less-profitable divisions," market watcher Zona Research said. "We expect the spin-off trend to gain momentum as established companies trim their sails to better compete in the Internet marketplace."

Communications companies are also recognizing a difference between their corporate and service provider customer bases. Corporate needs are simple: Build a network that works. Though the same premise encompasses the service provider market, customers here are looking for a wide variety of technologies and services that will allow them to better compete in what has become a cutthroat market.

This difference in customer needs, along with technology trends that promise to break down the barriers between private networks and service provider networks, have forced a re-examination of businesses. With corporate networking relegated to an essentially commodity function, nifty new technologies are most often launched in service provider networks--often targeted at those same corporate customers.

Furthermore, the slew of successful start-up public offerings have bolstered the view that the market is interested in more communications-oriented stock plays, not less.

A common theme has emerged: Unlock assets from a larger parent company in order to better focus a business and take advantage of an explosion of interest in technology stocks.

The Lucent and Cabletron moves follow news of the planned tracking stock for AT&T's wireless business and Hewlett-Packard's successful spin-off of Agilent Technologies from its parent.

Lucent itself was once a spin-off from former parent AT&T.

The Murray Hill, N.J.-based company's plan is to divest itself of its phone switch (or PBX), enterprise corporate networking and messaging, and structured cabling businesses. Those divisions account for about $8 billion in annual revenue, according to the company.

The break is intended to allow Lucent to focus on its fast-growing service provider businesses, encompassing wireless, optical, micro-electronics and high-end Internet equipment technologies.

"If there's three reasons, it's focus, focus, focus," Mike Bond, the company's vice president corporate strategy and business development, said.

The same could be said of Cabletron's move, though that company has yet to emerge with a strategy for each of its new businesses.

An undercurrent also links the two moves. Enterprise corporate networking technology is becoming a commodity. That trend, in conjunction with an increased use of a service provider as an outsourcing method for information technology (IT) needs, have fed the perception that the enterprise business has seen its best days. Only Cisco, among major competitors, continues to reap a revenue windfall from corporations.

"In the long run, the enterprise infrastructure will be the moral equivalent of the wall jack," Tere Bracco, analyst with market watcher Current Analysis, said. "All the enterprise infrastructure has to be is fast, dumb and cheap."

Bracco said Lucent and Cabletron's moves could be the first among many in the networking industry over the next 18 to 24 months.