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Lucent, Cisco in ATM deal?

Investment firm's bulletin raises, endorses the possibility
By Jim Duffy , The Edge , 10/17/2002
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A Wall Street investment firm Thursday suggested Lucent should sell its market-leading ATM/frame relay data networking assets to Cisco as a way for the bludgeoned company to get a quick infusion of cash and to exit a non-core business.

UBS Warburg issued a bulletin to investors this morning that stated the possibility and its rationale, claiming the transaction could result in a "win-win" for both companies. Lucent's ATM/frame relay business could generate $500 million to $650 million for the company, as well as a future ongoing services revenue stream, the firm states.

Lucent is putting a bigger focus on professional services going into 2003 in an attempt to return to profitability.

For Cisco, the deal would vault it into a market leadership position with coveted RBOC and ILEC accounts, a potentially lucrative subset of the overall telecom market where Cisco's penetration has been challenged most.

"We have already written in past notes that Lucent should exit this business and in fact, Lucent last week during their conference call did not mention data networking as one of the strategic areas of the future," the UBS Warburg note states. "For Cisco, it would provide the company an immediate number one market position in the U.S. RBOC market for ATM switching and a partnering relationship with Lucent for the RBOC market for all data networking products. This could be very powerful as the RBOCs look to migrate their networks to IP in the future."

A Lucent spokesman says the company does not comment on rumor or speculation.

"We're not in a position to provide details on our product portfolio," the Lucent spokesman says, adding that product positioning details may be revealed during Lucent's earnings call on Oct. 23.

Cisco did not respond to calls by press time.

Lucent acquired its market leadership in ATM/frame relay switching when it purchased Ascend Communications in 1999. Previously, Ascend had purchased ATM/frame relay switch market leader Cascade Communications.

But the slump in the overall economy, and in the telecommunications industry in particular, has hit Lucent hard. A roughly 50% reduction in carrier capital spending over the past two years has forced Lucent, along with other telecom heavyweights like Nortel, to lay off tens of thousands of people, exit businesses and discontinue product lines.

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