Lucent to Spin Off Corporate Networking

FRAMINGHAM (03/03/2000) - The quest for higher revenue and investor capital seems to be driving a frenzy of restructuring among networking vendors. Lucent Technologies Inc. in Murray Hill, N.J., this week said it will spin off its slow-growing corporate networking business as a separate firm.

The new corporation, whose name and structure have yet to be determined, will take with it Lucent's private branch exchange (PBX), cabling and LAN business segments.

It isn't as radical as Cabletron Systems Inc.'s recent decision to break itself into four pieces or as hyped as the stock offering from 3Com Corp.'s Palm Inc.

But analysts said Lucent's move will free its booming business for telecommunications carriers from the business of selling equipment to enterprise customers.

Sharper Focus

"This [spin-off] will benefit Lucent's standing in the carrier market," said Ron Westfall, an analyst at Current Analysis Inc. in Sterling, Va. "The newly created company will likewise be able to sharpen focus on its enterprise products."

Westfall noted that Lucent "had an interesting spin" to the announcement when it said the new company would count 90% of the Fortune 500 among its customers.

"That's Lucent's PBX stuff," he said.

Jim Slaby, an analyst at Giga Information Group Inc. in Cambridge, Mass., concurred. Slaby said only 3% or 4% of the $8 billion in annual revenue that Lucent said would go with the new company comes from sales of LAN gear.

Lucent said the businesses being spun off have low single-digit growth, whereas the segments that remain under the Lucent name have high single-digit growth.

Slaby noted that the virtual private networking business, which will remain with the Lucent parent company, is growing by 50% per year.

"It looks like the heat is on Lucent management," Slaby said. "It's pretty clear: Lucent didn't invest adequately in the enterprise market to compete with Cisco and Nortel. I also think [Lucent] miscalculated that their strength in call centers and PBX would help them sell LAN gear."

But Lucent enterprise customers such as Michael Bender, director of library networking at Pennsylvania State University in University Park, Pa., are pleased with Lucent's corporate networking equipment. "We have a network based on all Lucent products," Bender said. "It's great stuff."

Larry Witherspoon, director of information services for The Seattle Mariners Major League Baseball team, which uses Lucent equipment, said, "We look at this as a seamless change."

Donald Peterson, Lucent's chief financial officer, will be the new company's CEO.

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