Lawsuit, layoffs dog ever-changing Alcatel

Amid layoffs, sell-offs and a lawsuit, Alcatel next week is expected to reorganise and rename its newly acquired data network companies in an attempt to establish itself as a major competitor in the field.

In recent months, Paris-based Alcatel has snapped up Gigabit Ethernet switch maker Packet Engines, LAN hardware vendor Xylan and access device vendor Assured Access Technology. Now Alcatel is expected to clarify how the companies fit together and is likely to consolidate them, probably under the name Alcatel Data Solutions, industry sources say. Details of the reorganisation were not available.

As if Alcatel doesn't already have its hands full integrating several recently acquired data network companies, the founder of one of those companies last week filed suit against the French telecomms giant.

Packet Engines' founder Bernard Daines is seeking an unspecified amount from Alcatel, claiming the company terminated his employment agreement without cause -- by changing Daines' responsibilities and shifting control of Packet Engines away from the Gigabit Ethernet pioneer's Spokane, Washington, offices.

The lawsuit news comes on the heels of 42 layoffs reported earlier this month by The Spokesman-Review, a Spokane newspaper. The layoffs reduce Packet Engines' 209-member work force by about 20 per cent.

Alcatel bought Packet Engines for $US325 million late last year. Daines left the company soon after Alcatel announced in March that it would buy Xylan for $2 billion and make Xylan its "centre of competence" for data network gear.

Daines says his job and the job of Assured Access CEO Arthur Klein were eliminated, leaving Xylan CEO Steve Kim in control of the combined company. "Alcatel is a highly political company, and Xylan got full rein" over the other two subsidiaries, he says.

The goal of the layoffs is to minimise overlap between Xylan and Packet Engines. Alcatel is creating a single service organisation and a single sales group from the two companies. From a technology standpoint, Xylan gear will be Alcatel's primary equipment for the enterprise, competing directly against Cisco equipment.

Meanwhile, Packet Engines' switches will be positioned for the "packet core" of Internet service providers, Kim said recently. Alcatel will offer dial-up and digital subscriber line equipment from its acquisition of Assured Access Technology, and Alcatel will plug in its own voice-over-IP gateway.

In the future, Xylan will extend its network management for service providers, adding capabilities for billing and accounting. The company will also retrofit its gear to be carrier-class.

Separately, Alcatel last week sold the European operations of its DSC Communications subsidiary to Tellabs for $110 million in cash. The European business develops high-speed, fibre-optic transport gear for carriers.

While this transaction is unrelated to the Packet Engines activity, it is another example of the new wheeler-dealer culture that has set in at Alcatel.

Although many changes are taking place at Alcatel and its subsidiaries, it's much too soon to evaluate how well the company is building a strategy out of its new acquisitions, says Craig Johnson, an independent consultant in Portland, Oregon.

"The ink isn't even dry on these deals," he says.

It will be important to see how Alcatel competes against Cisco, Nortel Networks and others over the next year, he says.

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