Not All Lucent Federal Work To Go With Spinoff

Not All Lucent Federal Work To Go With Spinoff<@VM>Lucent Technologies Inc.

Nancy Lamberton

By Jennifer Freer, Staff Writer


Lucent Technologies Inc.'s Government Solutions unit will be included in the company's move to spin off part of its business into a new company, according to company officials, but Lucent will retain an as-yet undetermined share of its existing federal business.

Lucent's recent announcement that it would spin off its slower-growing enterprise market business is expected to be complete by Sept. 30, company officials said. The new company, which is still unnamed, will have about $8 billion in annual revenue, while the Murray Hill, N.J.-based Lucent will retain about $30 billion.

Despite the transfer of the Government Solutions business, Lucent officials said the telecommunications giant has no intention of abandoning the government market.

"The government business is critical to both companies," said Nancy Lamberton, vice president of sales and marketing for Lucent's Government Solutions business. "Both companies will still focus on selling Lucent services to the federal government, but it will allow us to sharpen our focus."

Lamberton said it was too early to provide all specifics on the split, but noted it would be "business as usual" while Lucent officials figure out the respective government roles of the two companies. She also said it was premature to say how many employees will be affected by the spinoff.

But the Government Solutions Business Unit will stay in Washington, D.C., where it is now based.

The spinoff will include Lucent's PBX, Private Branch eXchange ? a small version of the phone company's larger central switching office ? and its business cabling and local area network-based data businesses to shareowners.

"The basic reason for the spinoff is to sharpen the focus of both businesses," said Bill Price, media relations manager for Lucent. "Lucent's voice and cabling business is growing about 8 percent a year, while the market is growing about 4 percent. Other Lucent businesses are growing about 17 to 24 percent.

"[The spinoff] gives each company the ability to partner more widely, and the new company will have the freedom to reshape its business without being part of a larger business that is not focused on their areas."

Price said it made sense to include the Government Solutions business in the spinoff, since its services are more enterprise-type solutions.

Lucent announced March 1 that it would divest its slower-growing businesses that serve large corporations so it can concentrate on its fastest-growing operations such as wireless telephone and Internet equipment. The move came following a 23 percent drop in net earnings for its first quarter of fiscal 2000.

After reaching $84.19 a share in December, Lucent's stock foundered in January, dropping as low as $48.25 before rebounding of late. The share price closed at $66.88 on March 10.

"Lucent is trying to bring the life back into its stock," said Warren Suss, president of Warren H. Suss Associates, a Jenkintown, Pa., consulting firm specializing in telecommunications and information technology. "It had been a high flyer shortly after the spinoff from AT&T [in 1996], and it has now leveled off. Lucent looked at its product portfolio and spun off the slower growth and lower glamour portions of the business."

In announcing the spinoff, Lucent said Donald Peterson, currently its executive vice president and chief financial officer, will become the president and chief executive officer of the new company. Henry Schacht, former Lucent chairman and current member of the board of directors, will become chairman of the new company.

Lucent officials could not comment on the amount of business it does with the federal government.

"The federal group at Lucent has swung back and forth between emphasis on products and integration services," Suss said. "There is an inherent conflict for a product-based company, like Lucent, to sell integration services. It's a harder concept for customers to believe since it is best known for its products."

The split of the federal group from Lucent may enable the new company to compete more effectively in integration services, so the new company will not be tied to Lucent products, Suss said. But there has been a history of parent companies forming their own federal divisions after a spinoff that included the departure of federal revenue.

In any case, Suss expects the spinoff to free up the new company for new strategic alliances.

In the early stages of the spinoff, the new company expects to provide converged voice, video and data services, applications such as security, e-business, and call center solutions.

"There are different product line requirements and applications that are in demand by the marketplace," Lamberton said. "Top management feels the markets are best served by two separate companies and therefore the spinoff."

Lucent has partnerships with service providers and will continue to sell its products and services through the service providers to the federal government customer. The new company will focus on a combination of more direct selling and develop its channels approach to sell to the federal marketplace. It will also work on building a network of dealers, strategic partnerships with systems integrators and service providers.

A large part of Lucent's growth is in telecom hardware, which is associated with the growth of competitive local exchange carriers, Suss said. The market is getting a large number of newcomers who are putting in place regional infrastructures, and this in turn has fueled the growth of Lucent, and not the enterprise market, Suss explained.Business: The company was spun off from AT&T telecommunications company, and is North America's leading maker of telecom equipment and software. Lucent also makes integrated circuits and telecommunications power systems. Technology developed by Bell Laboratories provides the basis for many of Lucent's products.

Headquarters: Murray Hill, N.J.

Chairman and CEO: Richard McGinn

Employees in 1998: 141,600

1999 Revenue: $38.3 billion

1999 Net Earnings: $4.8 billion

Ticker: LU on the New York Stock Exchange

Web Site: www.lucent.com

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