Lucent gaining momentum behind IMS

Lucent is riding a new wave of momentum thanks to high-profile convergence contracts and growth on revenue and profit margin over the past year.

The company has landed BellSouth, SBC and Cingular Wireless as customers for IP Multimedia Subsystem (IMS) products and services. IMS is an architecture for next-generation telecom networks that supports voice, video and data integration over wireline and wireless networks, with service from any digital interface – desktop PCs to mobile handsets.

“We believe we have established ourselves as leaders in this space,” said Lucent CEO Pat Russo in a recent Webcast to financial analysts. “It is strategic for us and the ultimate enabler of our portfolio.”

Financial terms of the IMS contracts were not disclosed. But analysts say potential revenue for Lucent from these and four other IMS wins could be in the tens of millions to hundreds of millions of dollars. Lucent said it has seven IMS wins and 43 trials.

“We estimate initial hardware/software deployments to be in the $50 million to $75 million range, with additional revenues tied to IMS penetration with end customers,” said UBS Warburg Analyst Nikos Theodosopoulos in a recent report on the company.

UBS says, though, that Lucent is not likely to record any material revenue from IMS deployments in fiscal 2006 and is expected to see pickup in IMS sales in fiscal 2007. The firm also says the long-term revenue in IMS for Lucent tied to the service provider’s ability to get end users to pay for IMS services. 

Nearly every telecom supplier has an IMS pitch, but UBS says Lucent and Ericsson are the early leaders.

Any momentum from IMS will extend success Lucent achieved in fiscal 2005, which ended on Sept. 30. Fiscal 2005 was Lucent’s second consecutive profitable year after three years of losses – net earnings were $1.19 billion on a 4.4% growth in revenue over fiscal 2004.

In addition to IMS, Lucent is focusing on 3G wireless mobility, optical/data convergence, broadband access, professional services and applications. These are all growth markets that will achieve compounded rates of 10% to 41% over the next four years, Russo said.

These markets are where Lucent has placed its “strategic bets,” Russo said. She added that these bets align well with the growth segments of the industry, and should pay off as IMS takes hold among Lucent’s service provider customers and their customers.

“IMS is the heart and brains of the customers’ network, the control point,” Russo said. “And when you’re in the heart of the network you’re party to all conversations on how to connect these services to this network.”