First-Quarter Problems Don't Weaken Lucent's Competitive Standing
SAN FRANCISCO -- While Lucent(LU) blew it this time, its roster of acquisitions will keep it in the race with Nortel(NT).
Pairing Off
Lucent and Nortel have "matching strategies and matching portfolios," says Deb Mielke, principal with the consulting firm Treillage Network Strategies. "They match up pretty well." Mielke declined to name her firm's clients. "Did last night's prerelease change the long-term ranking? Probably not," says equity analyst Paul Silverstein with Robertson Stephens, which isn't a banker for the companies discussed. "You've got an industry with very strong growth across the board, and these are the three largest players." Each excels in different areas, Silverstein says. He rates Lucent buy and does not cover Nortel or Cisco. Since being spun off from AT&T(T) in October 1996, Lucent has bought 30 private and publicly traded companies for more than $32 billion cash and stock, most notably the Cisco nemesis Ascend for $24 billion stock in June 1999. Nortel, which has invested roughly $12 billion stock and cash in nine acquisitions since 1996, took its biggest bite into the Internet business by acquiring Bay Networks for $6.9 billion in stock in August 1998.Better Off
"Between Bay and Ascend," says Pierce, "Lucent got the better company." Ascend, she says, has a longer track record and a reputation for high-quality carrier products. According to Lucent, customers didn't defect because it lacked key products. Rather, the company failed to forecast new demand from both its longtime customers, which are growing more dynamic in their purchasing decisions, and from younger new customers who are not willing to wait. When orders for new products soared, Lucent wasn't ready. "This is a lesson to everybody," says Lisa Pierce, analyst with the consulting firm Giga Information Group. Pierce says that overall Lucent had been operating at higher production capacity than Nortel, and so was less able to accelerate its manufacturing of certain products on short notice. Pierce says Lucent can fix the problem. Until the recent blowup, "They've had a good track record" with manufacturing.Falling Off
But until Lucent delivers on its promise to revitalize growth, observers are more interested in celebrating its rivals. Equity analyst Martin Pyykkonen with CIBC World Markets (not a banker for the companies discussed) downgraded Lucent to hold Friday. "Cisco and Nortel probably have some competitive things to be happy about for the next six to nine months," Pyykkonen says. He rates Cisco buy but doesn't cover Nortel.>To order reprints of this article, click here: ReprintsTheStreet Premium Services For Personal Service: 877-471-2967
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