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The telecom crash leaves Lucent battered, beaten ... but breathing

Fri, 11/30/2001 - 7:00pm
Duffy Hayes

Google Factor: 310,000

From all of the bad press Lucent has received, you'd think that it had gone from Darling to Devil.

But the reality is that the telecommunications equipment maker has descended into reasonable market territory, against the backdrop of a feast-or-famine telecommunications sector that saw explosive growth in 1999 and 2000 and a virtual collapse in orders from those same customers over the past year.

But the market is not solely to blame. The economic downturn and consequent slashing of spending by service providers has been the catalyst for needed change at Lucent. Recently, the company posted a huge fourth quarter loss of $8.8 billion, and sales for the quarter were $5.2 billion, down from $7.2 billion a year earlier. The carnage has continued throughout the year; it has posted losses of $16.2 billion and slashed more than 30,000 jobs–and more cuts are planned.

The recent spin-off of Agere Systems should relieve the company of more than $2.5 billion in debt, and the sale of Lucent's Optical Fiber Solutions business to Furukawa Electric and Corning should bring another $2.75 billion.

Believe it or not, all is not lost at Lucent. In a sort of perverse way, the economic slump has meant that Lucent has had more time to recover and lick its wounds, as its smaller upstart competition has been decimated by the market climate as well.

Also, Lucent's carrier clients still remain relatively on board. During hard economic times, carriers tend to shy away from installing new types of network equipment, and focus instead on maintaining older equipment already entrenched in the network. Carriers already use a lot of equipment from makers like Lucent and Nortel, and will likely buy spare parts and upgrades in the near term as opposed to trying systems from newer equipment makers.

But today, Lucent remains in a financial funk, and is hoping for a positive market swing to get network service providers spending again. It still provides much of the equipment used by its RBOC clients, and can maximize its existing customer base because its product line is still relevant.

But going forward, Lucent will need to tap into its intellectual capital to come up with some innovative new products, especially in the growing areas of edge and backbone IP routing. Today, it is a market leader in high-end multiservice switches and access products. In optical technology, it is distinctly middle-of-the-road, where the market is crowded with competitors at every turn. It is on surer footing, though, with its expanding line of digital subscriber line access products.

Looking out into an unsure future, Lucent's success seems indelibly tied to innovation. Whether management can parlay newfound financial stability into new technology is the question the industry is anxious to answer.

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