News: Analysis & Commentary: Deals
Lucent Clicks with Ascend
Can the new partnership take on Cisco in networking gear?
It's not as if Lucent Technologies Inc. were a 98-pound weakling. The AT&T spin-off rules in phone equipment. But in the market for data-networking gear, it lagged far behind Cisco Systems Inc. That has changed, though: On Jan. 13, Lucent bulked up with a $20 billion deal to buy Ascend Communications Inc. Crows Lucent CEO Richard A. McGinn: "We're now the undeniable leader in communications networking."
Well, getting there. Ascend is No. 1 in two vital areas: gear that connects users to the Net and switches that move data across phone networks. But Cisco still owns the market for routers--computers that direct Internet traffic. Lucent has a different edge, argues Daniel C. Stanzione, chief operating officer at Lucent and the new head of the unit that will include Ascend: reliability and service up to the standards of the phone system. "This makes things far more competitive for Cisco," concludes Nikos Theodosopoulos, an analyst at Warburg Dillon Read.KNOWHOW. Cisco is strongest with corporate customers. But $8.5 billion Cisco has also begun to offer its wares to phone and Net service providers such as AT&T and Sprint Corp. Cisco argues that such customers are drawn to its broad product line--the result of multiple acquisitions--and its Internet knowhow. "Lucent still doesn't have leadership in Internet technology," says Larry Lang, head of Cisco's service provider unit.
The Lucent-Ascend deal won't help Nortel Networks. The Canadian giant bought Cisco rival Bay Networks Inc. last year for $9.1 billion, but is still trying to swallow the data-networking company: On Jan. 13, it said it would slash headcount by up to 10%, citing the need to streamline operations.
3Com Corp., the No. 2 data networking player, may get squeezed. The company, which leads in consumer products such as modems, says it has not lost ground to Ascend in sales to Internet service providers. But with Lucent opening new doors for Ascend, that could change. There's a new muscle man on the beach.By Andy Reinhardt in San Mateo, Calif., with Peter Elstrom in New York