At your service

It’s no secret that Lucent is placing a greater emphasis on professional services as part of its turnaround strategy.

But services appear to be taking on a greater role as a revenue contributor to Lucent… perhaps to the point where in the future, people will think of Lucent as a professional services company first and a product company second.

In a meeting with financial analysts last week, Lucent CEO Pat Russo certainly drove that impression home.

“Our ability to integrate can and will be a differentiator in the long term,” Russo told the analysts. “It will pave the way to offer IP services that lower cost and generate revenue.”

That’s not to say that Lucent will abandon the product business. Far from it – Russo stressed that Lucent is in, committed to, plans to stay in, and grow its products business.

Yet service providers are looking for ways to leverage their existing investments while offering new services with equipment they already have installed. Examples include IP Telephony media gateway functionality for Lucent’s venerable 5ESS switch; and Ethernet switching and transport capability for the company’s SONET/SDH transmission gear.

But breaking with tradition, Lucent now plans to grow its professional services business independent of its product business, Russo says. Professional services – building, integrating, operating, maintaining and managing multivendor networks – is a $40 billion-per-year market that’s growing 8% annually.

Each of the 30 to 50 service providers Lucent considers a potential customer operates and manages three or more independently-built networks, Russo says. They spend $3 billion per week operating and maintaining their networks; and for every dollar spent on a capital expenditure, $6 is spent on operational expenses, she claims.

“They’re asking us to come in and show them creative alternatives to their network operations and cost structure,” Russo says.

So Russo believes professional services is a low hanging fruit for Lucent.

Network integration is the second prong in Lucent’s three-pronged strategy to hang around for the long-term. The first prong is to deliver Bell Labs developed products; and the third is to drive operational efficiency out of Lucent through supply chain streamlining.

“It’s no longer a question of whether we have staying power,” Russo says, referring to the restructuring initiated in 2001 that slashed two-thirds of Lucent’s workforce and canceled several products. “We do see a number of good opportunities, and we’re aggressively pursuing them.”