Lucent spin-off comes with a big asterisk

Lucent Technologies isn't sending 100 per cent of its enterprise portfolio over to the new spin-off it announced recently. That could spell additional challenges for the fledgling company as it tries to get its bearings in the corporate networking market.

Lucent is spinning off its PABX, Systimax structured cabling and data business based on LANs (local area networks), enabling it to focus more on areas like optical networking, Internet infrastructure, wireless networking, semiconductors, Web-hosted applications, and professional design and consulting.

The spin-off, which should be complete by September 30, will have its own brand, board and research and development organisations, operating separately from Lucent.

But Lucent officials confirmed the company is keeping for itself the enterprise-class products that were included when it acquired fast-growing data players Ascend Communications and Xedia in 1999.

Those products are primarily WAN (wide area network) edge devices, including Xedia's VPN (virtual private network) router family, which is now called Lucent AccessPoint. They also include offshoots of Ascend's Pipeline remote-access family, including the SuperPipe family of multiservice access devices launched last year that are aimed directly at branch offices and telecommuters.

Lucent is even going to keep some of its own home-grown WAN products aimed at VPN implementations, including a firewall appliance and the Security Management Server.

All of these acquired and home-grown products are currently included in a group called the WAN Systems Group. Tellingly, the WAN Systems Group had been included in a recent reorganisation at Lucent that created for the first time an enterprise networking systems (ENS) business unit joining up voice and data products. Yet under the new plan, WAN systems is not going over to the spin-off, even though it is designed as an enterprise networking play and includes PABX (private automatic branch exchange), call centre, Ethernet, ATM (asynchronous transfer mode) and cabling product families.

The decision to hold out this key group from the enterprise spin-off could further complicate the efforts of the spin-off's data side - primarily consisting of the Cajun campus Ethernet and ATM products - to find an installed base it can successfully sell to.

Of the $US8 billion in revenue represented by the enterprise spin-off, most is PABX and call-centre-related, according to IDC analyst Esmeralda Silva. The LAN switching line contributed only $US270 million for 1999.

And that pairing hasn't borne many dividends, she said.

"It's unfortunately still the case that having PABX expertise does not mean you're going to be able to sell LAN switching systems into the enterprise space."

She suggested that the Lucent spin-off may now try to reposition the Cajun line as ideal for e-commerce data centres - not only for enterprises but also for Web hosting providers and application service providers. The company could attempt alliances or acquisitions with others emphasising e-commerce infrastructure.

Peter Bernstein, president of Infonautics Consulting in the US, said the spin-off could also pursue new opportunities, such as acquisitions of customer relationship management software companies. These are opportunities Lucent management hasn't pursued much recently, instead seizing big opportunities in optical networking for service providers.

Lucent may also be keeping the VPN products simply because they're hot.

Howie Gittleson, vice president of engineering for the WAN systems group, said the group's product lines are growing at a compound annual rate of 50 per cent. The bulk of the spin-off's product lines - the PABX-related systems - are generally considered to be growing only in the high single digits or the teens.

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