Lucent, LANNET and the Kinks

By Fred McClimans
Network World, 07/13/98

My sincerest apologies to Mr. Davies and the Kinks for what you are about to read.

(To the tune of "Lola")

They met at a show called Interop
Where they drank champagne that tasted like Coca-Cola.
L-U-C-E-N-T, Lucent.

They walked up to Madge
And they asked them to dance
And with a background check and an NDA they said 'OK now'
O-K, O-K now.....

Well, Madge had always tried to open up this door
But Lucent'd never ever pooled their interests before
LANNET just smiled and took them by the hand
And said, 'Dear boys, We're the best in the LAN.'

So maybe that isn't how it happened. But whatever the backdrop, Lucent is now going to pay a mere $117 million for the reborn LANNET organization. In a continuation of its best-of-breed strategy, Lucent has coughed up the networking equivalent of a few nickels to purchase a firm that was all but comatose a few years ago. The question remains: Why?

This is a tough one to answer. Is it to replace the agreement with Bay that has slowed of late? Probably not. Is it to challenge Cisco on Cisco's home turf - the campus network? Probably not. Is it to simply get the same technology the company had been OEMing from Madge - only cheaper? Perhaps. What makes it so difficult to pin down is that Lucent has been very cagey with regard to its true strategy in this area. Without a defined strategy, not just a "here is where we want to be," it is tough to understand, let alone define, the company's logic. So let's just take a look at some of the things that are likely to be true regardless of the actual "whys."

LANNET was cheap. Of course, you have to take into account that the company was also mostly dead a few years ago. With annual revenue of well under $100 million, Lucent had to spend only two times the revenue for this technology-laden firm.
LANNET has good name recognition...in Europe. Most of LANNET's sales - both now and in the past -have come from Europe. And while LANNET's growth has clearly not kept up with that of its major international competitors (OK, it hasn't even been on the chart), that growth does add value to the LANNET name overseas.
Lucent needed distribution in Europe. Although Lucent has been OEM'ing LANNET products in Europe for a while now, LANNET has still maintained its own distribution capabilities that appear to reach into places Lucent has been unable to penetrate.
LANNET has some damn fine technology. Hard to believe? Yup. And yet it is true. Through the company's Israel-based development group, which has retained much of its talent during the "Madge years," LANNET has managed to put together some of the highest performing Layer 2/3 switch/routing fabrics out there, and its ATM products look to be just as solid.

This deal is very much in line with the best-of-breed approach Lucent has taken in the past regarding Agile, Yurie and Prominet. However, these acquisitions also provide for some overlap, though not enough that the market can't handle it.

In the long run, Lucent gains with the LANNET deal some solid products, some very good engineering talent and lots of potential for the future. This is important, as this acquisition is more likely to produce benefits in two to three years, rather than next quarter. Instead of taking on Cisco now - a battle that cannot be won - Lucent appears to be playing with all the right technologies to prepare itself for the day when Cisco really starts to move into Lucent's turf, and openly begins to compare itself to Lucent on a product-by-product basis.`So is this a purely defensive move? Not at all. I don't think we have yet seen the next level of product from Lucent - a product set that is likely to involve a much closer integration of voice/data/application issues than we have seen in the past, and will likely span the company's wired/wireless interests. So while this may not be the acquisition that puts Lucent on the internetworking map, it does have some good potential, if the company plays its cards right. So let's call this a big "neutral" on the value meter, as we're all going to have to wait and see what Lucent is really up to over the next couple of years.

As for what the end-user community should do, the answer is simple ... nothing. Those limited users still in the LANNET camp should expect some stability from this deal and should not alter their plans at this time. Similarly, Lucent has already been OEMing this product for a while, and we do not expect this deal to do anything substantial to product availability. For now, I'd just sit back and see how others, such as Cisco, Nortel and Ascend, react.

And what of Madge? It gets rid of some debt, gains some needed pocket change, and disposes of some really nice technology the company just could not find a way to sell.

Lucent, LANNET and the Kinks

Related Links