Lucent Spinoff Will Lack Full Lineup of Gear

MURRAY HILL, N.J. (03/03/2000) - While Lucent Technologies Inc. this week said it would spin off a new company whose products and services would focus on enterprise customers, it will stop short of populating the new firm with a full range of LAN and WAN products.

The new company, which has yet to be named, will include Lucent's massive PBX and call center operations, plus its LAN switching business and Systimax cabling unit. But the spinoff will lack Lucent's IP access routers, frame relay access devices and virtual private network (VPN) security software - all of which will remain with the original company. Other WAN-edge devices coveted by carriers for their managed enterprise services will also remain.

The move will leave users - who have been waiting for a concerted Lucent effort to sell voice and data services in a single package - with the likelihood of having to deal with two vendors rather than one for their network needs.

Nevertheless, customers generally said they expect the new company will be able to focus more squarely on integrating Web commerce with telephony call centers because of the spin-off's call center hardware and software focus. And they expressed hope that Lucent's Cajun line of Ethernet and ATM switches will take center stage over the optical network gear Lucent has been concentrating on.

Lucent boasted that the new company is No. 1 or 2 in most of its markets. But in the LAN switching arena, the new company is rated No. 10 by IDC, with only 1.3% of the ports shipped worldwide and 1.9% of the worldwide revenue in 1999.

In fact, of the $8 billion in revenue represented by the enterprise spinoff, the large majority is PBX and call center-related, estimates IDC analyst Esmeralda Silva, with the LAN switching line contributing only $270 million in 1999. And that pairing hasn't paid many dividends, she says: "It's unfortunately still the case that having PBX expertise does not mean you're going to be able to sell LAN switching systems into the enterprise networks."

Cisco leads the market, with 39.2% of the LAN ports shipped in the highly fragmented market. 3Com has 18.8%, and Lucent's PBX archrival Nortel Networks has 11.1% owing to its Bay Networks acquisition. Silva says the Lucent spinoff may try to reposition the Cajun line as ideal for e-commerce data centers - not only at enterprise customers but also for hosting companies and application service providers - and could attempt alliances or acquisitions with others emphasizing e-commerce infrastructure.

Lucent's lackluster enterprise network sales problem can be traced to a lack of a strong marketing push of the company's workgroup Cajun P120 and P220 switches, says Lucent user Joe Inzerillo, director of technical operations for the United Center in Chicago. The United Center not only is the Chicago Bulls' basketball arena but also operates a shared network among several stadiums and practice facilities.

"I think they could do a little bit better on the pricing, and they really need to be selling the upgrade story," Inzerillo says. The United Center uses the campus-class Cajun P550, which is "unbelievable - much better than anything else on the market," he says. But the LAN switching line has lost market visibility ever since Lucent bought ATM and IP remote-access powerhouse Ascend Communications last year, Inzerillo says.

Patric Brayden, president of the International Definity Users Group - Lucent's main user organization - says he's been assured by Lucent executives that the new company will obtain agreements to resell the WAN-access products Lucent will keep. Brayden, who is network services manager at Group Health Cooperative in Seattle, says the spinoff may have an easier time focusing on a convergence story than Lucent: "It's better to have the leadership focused in one direction or the other."

Donald Peterson, current chief financial officer of Lucent, who is slated to be CEO of the spinoff, told Network World: "I think you'll see some shared intellectual property between us and Lucent." Much of the WAN-edge equipment that is staying with Lucent (see graphic) originated at either Ascend or VPN pioneer Xedia, both of which Lucent acquired in 1999. Those products are generally growing 50% per year, Lucent officials say, while some of the product lines going into the spinoff are growing at single digits.

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