Like any other market, telecommunications (including next-generation
telecom) is a cyclical one. Unfortunately the hype and hope that was
generated in the late 90s and that lasted into the early stages of this
decade caused many otherwise sensible business managers to irrationally make
decisions that would come back to haunt them sooner than later.
Take for example, N.J.-based Lucent Technologies (www.lucent.com).
Here is a company that was spun out of AT&T with the highest of hopes.
Immediately, an investor darling and a symbol of all that was good in
the new economy, Lucent made a lot of people a lot of money before the
bottom fell out. For one thing, Lucent had a broad portfolio of products
targeted at several different markets. This made tremendous sense since the
company, for example, would be able to weather a downturn in the enterprise
market by leveraging their relationships with the service provider
community, and vice versa. Alas, emboldened by myriad analysts
predictions that the service provider market was the battleground of choice,
Lucent set about spinning off their slower-growth business, which
served the enterprise market. Thus was born Avaya (www.avaya.com).
Unfortunately for Lucent, the service provider market tanked, and
combined with a slew of problems including the questionable choices of
loaning small carriers millions of dollars with which to finance purchases
of Lucent equipment, it spelled doom for the erstwhile high-flying company.
The problems of this company are by no means unique, and the market affected
many of their rivals to an equally great extent (see Nortel, Cisco et al),
but the spinning off of Avaya was, at best, a case of unfortunate timing,
and at worst, a blunder of epic proportions.
A Deep Draft Means Stability In Rough Waters
By keeping a foot firmly planted in both the service provider market and
the enterprise space, Lucent could have leveraged development dollars across
multiple product lines. Also, many of Lucents customers were the larger
enterprises, whose purchases rival those of small startup carriers. By
keeping a pipeline to these customers, Lucent would have been able to sell
through the headquarters to all the branch offices along the line. But by
separating out their enterprise business, and in effect, betting on the
service provider market, Lucents gamble did not pay off.
Unfortunately for Lucent, the pendulum has swung away from the service
provider market and firmly into the enterprise space, as evidenced by the
growing success of companies focusing on this arena. Avaya, Cisco, Siemens,
Nortel all of these vendors are enjoying revenue derived from enterprise
sales as they wait for the service provider market to come back into play.
And theres no question that it will come back, the only variable is when.
Will Lucent have the necessary financial strength to move aggressively when
the market returns? Or will they be unable to compete in a market they once
Setting Sail With A New Captain
Some signs are promising. Lucent has appointed Patricia Russo to serve
as President and CEO. Ms. Russo is coming off a short stint as COO of
Eastman Kodak, returning to Lucent where she has served in various executive
posts in the past. A founding executive who helped organize the spinoff from
AT&T, Russo served as Executive Vice President and CEO of Lucents
Service Provide Networks division as well as executive vice president of
Lucents Corporate Operations. Some critics are wary of her ties to the
Rich McGinn days of the company, but supporters are betting that she has
what it takes to right this listing ship.
Russo succeeds interim chairman Henry Schacht who has already taken steps
to try and shore up the companys future. On his way out the door, Schacht
said investors should expect a challenging start to fiscal 2002, but
promised a return to positive cash flow and profitability soon. Of his
successor, he had this to say, Pat has all the skills Lucent needs right
now. She understands and embraces [Lucents] strategic and restructuring
plans, and she can step in as CEO without missing a beat.
Only time will tell if Lucent, with Pat Russos hand on the tiller,
will weather these stormy seas. As for the service provider market, it too
will be back. It may take some time for the carriers to wade through their
inventory of newly acquired telecom gear, but that time will come. Lucent,
who has a tremendous history of selling to the biggest customers in telecom,
might once again be in a position to dominate the market. But so much
depends on their ability to wait out this down market. While their
competitors are selling into the enterprise space, generating much needed
cash, and (one assumes) investing in the research and development of
next-generation solutions, Lucent is still focusing on restructuring. If
only they had a world-class enterprise equipment division. Then the outlook
might be a little bit better.
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