Lucent Optical Exit Could Boost Others
By Evan Blackwell
from the March 19, 2001 issue of Broadband Week
Lucent Technologies' possible exit from the optical fiber manufacturing business could end up being a big plus for the company that either buys or partners with Lucent's fiber enterprise.
In what has become a long goodbye, Lucent finally has confirmed months-long rumors that it is looking at options that might include either selling its Optical Fiber Solutions business or making it part of a joint venture.
According to Bill O'Shea, Lucent's executive vice president, the process should take a few months and will be done "so we can better focus our resources and investments on the areas critical to our markets."
In a market where demand has caused major shortages of components and fiber cable over the past year, the sale could attract some competitive bidding from other manufacturers whose current construction of more production capacity may not bear fruit until late 2001 or next year.
A high price would benefit Lucent, which is undergoing a lengthy, expensive restructuring to boost profitability and to spin off businesses such as enterprise systems and semiconductors so it can focus on optical systems and software.
For the bidders or potential partners, the rewards could be just as hefty: The Norcross, Ga.-based operation showed a faster rate of growth than any other unit in the company in fiscal 2000, growing about 60 percent.
Lucent's fiber unit employs about 6,300 people, many of them at the headquarters and plant in Georgia. The unit also has facilities in Massachusetts, North Carolina, New Jersey, Connecticut, Denmark, China, Japan, Russia, Germany and Brazil.
Reflecting the strong demand for its products, the Optical Fiber Solutions unit is in the midst of a $1 billion expansion and recently invested $250 million to boost production capacity for its Allwave metro fiber product at its Norcross plant.
Lucent's financial straits plus the overall slowdown in financial markets could dampen bidding, although analysts say it's unlikely to make Lucent dismiss the idea of a sale.
"Of course, six months ago Lucent wouldn't have been selling this business," said Yum Petkovic, a senior analyst with Ovum. "There's still great value in that business. They're still going to get a good enough price that it will be worth it for them to sell it."
The strongest push for the Lucent unit might come from industry leader Corning Inc., with Alcatel, Pirelli and JDS Uniphase also being mentioned as possible suitors. While Corning seems like a logical choice to take over the Lucent assets due to its standing as the nation's largest manufacturer of fiber and cable, that position also raises antitrust concerns. Some analysts already have estimated that a combination of Corning and Lucent fiber businesses would control more than 50 percent of the market.
Mark Storm, an optical analyst from Frost & Sullivan, has heard all the Lucent-Corning rumors. He's still not sure if the deal would work. Representatives from Corning and Alcatel both declined to comment on the reports of a Lucent sale or partnership.
"(Corning) could spend a year just trying to get the Justice Department to approve the sale," Storm said. "The biggest reason Lucent would be selling it would be to raise capital now."
Should the Corning situation bring about too many regulatory obstacles, Petkovic says, JDS could be next in line because the Lucent business would broaden the scope of the company's products and be very complementary to its existing lineup.
Alcatel, which has focused mostly on submarine cable, might not make as much sense.
"Lucent's looking into the future," Petkovic says. "There's so much fiber in the ground already, where's the business going to go? Is it going to get the same kind of growth in the future as it has for the last 10 years?"
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