Lucent Spinoff Has Tough Road Ahead

FRAMINGHAM (03/20/2000) - While the recent announcement that Lucent Technologies Inc. would spin off its Enterprise Systems businesses made Wall Street smile on the parent company's stock, the emancipated child faces formidable challenges. All talk about "focus" aside, the fact is that the new arrangement won't make selling Lucent campus solutions any easier.

The new spinoff cannot simply continue on its way, relieved now of that nagging parent. The old story won't work, and the old strategy, which apparently was not working too well to begin with, will need to be shed completely.

To make matters worse, the spinoff finds itself in an awkward category. While it is no longer a Nortel Networks-sized behemoth offering every product under the sun, neither is it a relatively small and nimble company such as Foundry Networks, able to keep a finger on the industry's pulse and turn on a dime.

This distinction is not just academic. The network industry has become increasingly polarized as Cisco, Nortel and Alcatel have scarfed up companies.

More and more it seems that we find companies that do one thing - like Web switching, wireless LANs or caching - or virtually everything. The old Lucent was clearly in the latter category. The spinoff is somewhere in between.

While there was no "comfortable" place to tear the companies apart, the point Lucent chose is particularly painful. At a time when the lines between LAN and WAN are blurring, when campus networks will become more tightly linked to WAN services as the application service provider market surges, Lucent chose to split the companies at the LAN-WAN boundary. Ouch.

Soon, the spinoff will go on its way, carrying with it the Prominet and LANNET campus switching assets. No longer will it be able to fortify its story by tying in the substantial technology assets that Ascend, Xedia and others brought to the table. Those units are staying with the parent. For the new Lucent, it is the end of an era that never began.

One can only imagine the battering that the new Lucent is going to take from both its large and small competitors. Lucent's biggest challenge will be proving that interfacing LAN with WAN is not black magic - that buying "best-in-class" campus switching gear from Lucent is the way to go. Simply put, if the new company can't succeed in decoupling the LAN purchase from the WAN purchase, it's dead.

With no previous installed base to speak of, virtually every Lucent network would be a mixed, heterogeneous network. Incumbent Cisco has put the fear of God into customers when it comes to tainting their networks with non-Cisco gear. That fear, uncertainty and doubt may have been the most important contributor to Lucent's previous lack of success. Now, it is Lucent's greatest enemy. Unless attacked and overcome, the spinoff's prospects are gloomy.

The silver lining here for customers is that if the new Lucent succeeds, we may see the uncertainty about mixed networks finally put to rest. And that would be a major step forward.

Tolly is president of The Tolly Group, a strategic consulting and independent testing firm in Manasquan, N.J. He can be reached at ktolly@tolly.com.

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