Lucent Dims Softswitch as Red Ink Flows

"Lucent had developed a lot of things for the future, but that's a future that's not going to happen," says Chris Nicoll, head of networking analysis at CurrentAnalysis.com, a Sterling, Va., research and consulting shop.

Lucent has officially said it is looking to cut its 53,000-employee staff size by 7,000 or more, but sources familiar with the plan have said top management is preparing more drastic reductions that would bring the total to 35,000 or less.

Where It's Going

The entire communications gear industry has been on a prolonged and painful scaledown since the collapse of the late-'90s Net building boom. For Lucent, the current cuts continue a red-ink reduction mandate that started a year ago when the company began to exit all unprofitable products and businesses and focus on its major customers.

"This might not be a bad move for Lucent -- in fact, they may be hearing from their customers where the marketplace is going and that it will be a few years before they need this kind of equipment," says CIR's Greenholtz.

Softswitches are known as the essential next step in network evolution. These next-generation boxes help connect traffic from old-wire phone systems to the Internet.

Last year, seeing no demand overseas for its most advanced softswitch, the so-called 7R/E, Lucent softswitch chief Dave Geary told managers that the company was killing all its international 7R/E work. As a result, some U.S. softswitch customers such as Broadwing (BRW Quote) aren't exactly surprised to hear that Lucent is now throwing in the towel here.

Broadwing illustrates part of Lucent's conundrum. The Cincinnati telco was the first U.S. customer for to buy a part of Lucent's 7R/E two years ago. But Broadwing has not returned for more softswitch gear.

Broadwing's network chief Dennis Hinkel is sympathetic to Lucent's position. "We were always talking with them about the next step for us," says Hinkel. "With 90% of our access lines being handled by Lucent switches, they were clearly the first in line to get the business."

But it appears Lucent couldn't afford to wait.

That doesn't necessarily doom Lucent's future, says Lehman Brothers analyst Steve Levy. Killing products today, says Levy, doesn't preclude acquiring companies with the right products at some later date.

To be sure, investors long for the day when Lucent can find its path out from under too many products, to the luxury of having too few.