Broadside:
The Road To...
from the June 4, 2001 issue of Broadband Week
There's a street not far from our suburban Denver offices that the local authorities in their infinite wisdom named "Lucent Boulevard" after that company decided to construct a sparkling new corporate campus here a couple of years ago.
Like Lucent's recently aborted merger talks with Alcatel, I guess renaming the street seemed like a good idea at the time.
But with a negative mojo usually linked to the legendary Sports Illustrated magazine curse--promising athletes who get touted on the cover of SI supposedly succumb to injury, mediocrity or outright failure with an alarming frequency--Lucent began imploding not long after the street signs went up.
First came the spinoff of Avaya Communication, which was intended to boost shareholder value by separating a slow-growth business from the parent company. Then came the decision to split off its microelectronics business as Agere Systems, to boost shareholder value by separating a fast-growing business from the parent. Then came repeated earnings reductions accompanied by massive charges and layoffs, turmoil in the executive suite and a stock price that succumbed to gravity with a Titanic-like vengeance.
Now in the denouement of its latest misadventures, Lucent somehow has found itself moving from talks about the potentially profitable sale of its fiber business and into what became an abortive merger with Alcatel.
Other than an exorcism, what's the next likely act in this tortured corporate drama?
That answer will be a product of financial market perceptions, of how the customers of these companies treat them and of their actual performances in the year ahead. But how these two and other struggling stars of the broadband telecommunications world handle themselves and their affairs going forward will be possibly the most significant element in that equation.
It's somewhat encouraging that these erstwhile powerhouses were able and willing to walk away from a deal that in essence wanted to create a strong, single entity out of two troubled ones.
But it's a bit discouraging that the prevalent attitude seemed to be that these two expected to merge their way out of problems that apparently were so fundamental as to possibly defy such a short-term solution.
Assuming it does not find another buyout benefactor, Lucent still apparently needs to raise the cash that a sale of its fiber business would provide. And while it continues to get wins in areas such as DSL hardware and digital wireless networks, business conditions aren't getting any easier. Alcatel or no Alcatel, Lucent remains as "in play" as a company ever gets, regardless of whether or not it should be.
And Alcatel? In announcing after the Lucent talks ended that it would suffer a roughly $2.5 billion loss in the current quarter, Alcatel came off as looking like...well, like Lucent has looked over much of the past year.
Maybe the timing of this year's SUPERCOMM is providential, given the opportunities there to get fresh insights not only about new technologies but also about how providers of these technologies will need to approach their real-world markets.
Do their customers want them to consolidate? Do service providers prefer giant, horizontally integrated suppliers to less monolithic vendors? Most importantly, are vendors responding to their needs or becoming increasingly distracted at a high level by corporate and economic challenges?
The answers will be there, but there won't necessarily be any street signs to point the way.
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