Updated from 4:31 p.m. EDT

Aiming to expand its lineup of data networking products and stay abreast of

Cisco

(CSCO) - Get Report

,

Lucent

(LU)

said Tuesday it planned to acquire

Spring Tide Networks

, a private maker of network switching equipment, in a stock transaction valued at $1.3 billion.

The No. 1 maker of phone equipment said it expects to acquire Spring Tide by October. Lucent said the purchase will result in a one-time charge against earnings in the quarter it closes. For fiscal 2001, the transaction will dilute Lucent's pro forma earnings per share for continuing operations by about a penny.

Shares of Lucent finished Tuesday regular trading down 2%, or 3/4, 49 1/2.

Under the terms of the deal, the Murray Hill, N.J.-based company will swap 26.8 million shares and options for the 96% of Spring Tide it doesn't already own - a package valued at more than $1.3 billion, based on Lucent's July 24, closing price of $50.13. Lucent took a 4% stake in closely-held Spring Tide in a January round of venture financing.

What's in Spring Tide

Spring Tide, based in Maynard, Mass., develops devices that allow companies to offer Internet Protocol, or IP services - such as virtual private networks, managed firewalls, voice and multimedia services - across any kind of network connection, whether wireless, broadband DSL, broadband cable or traditional wire.

Spring Tide's flagship product, the IP Service Switch 5000, can route tens of thousands of users simultaneously. Lucent said Spring Tide's equipment delivers up to four times the scalability and performance of competing products.

"It makes sense for Lucent to acquire

Spring Tide because Spring Tide's technology helps tie together the various access products that Lucent has," said David Heger, an analyst with

AG Edwards

. Lucent's data-switching abilities form the backbone of their bid to become a major IP player and compete against Cisco and

Nortel

, Heger said. Heger has a maintain rating on both Lucent and Nortel.

Spring Tide makes products used to create private networks on the Internet and deliver video over phone lines. An employee's email and voice mail pass through Spring Tide's service switch before reaching the public network. The switch allows service providers to offer virtual private networks on a large scale. "We haven't had a product in this connecting space, on the edge of the network," said Lucent spokesman Bill Price.

Price also said companies whose employees telecommute or often use remote access stand to benefit from the Spring Tide switch because it creates a firewall across the network. "It's not simply an IP pipe, it's providing reliability, security. If you want to do a video conference, you need a higher quality of service than with just an email or a purchase order."

Meaning of the Merger

Acquiring Spring Tide supports a vision that Lucent, involved in data networking since 1996, announced earlier this year. "We are looking to acquire, develop and partner with other technologies in order to capitalize on the Internet infrastructure market," Price said. Lucent has shifted its focus from components and phone and computer systems to the market for equipment that lets customers offer services over the Internet. In this vein, Lucent, which has made more than three dozen acquisitions since 1996, last week announced it will spin off its networking enterprise business.

Since entering a manufacturing agreement with Spring Tide in December 1999, Lucent has secured contracts for the IP Service Switch 5000 with several customers, including

AT&T Wireless

and

ionex telecommunications.

As AT&T Wireless enters new markets, Lucent, with Spring Tide, will provide the infrastructure equipment to carry both phone service and high-speed data, said AT&T spokesperson Ritch Blasi.

"Spring Tide happens to bring the kind of functionality we want to provide our customers," Blasi said. AT&T currently has such multi-functional networks, called fixed wireless systems, in Dallas and Fort Worth. Blasi said the company plans to equip San Diego with a fixed wireless system in September and will proceed to Los Angeles, Houston and Anchorage sometime between November and December.

"Businesses are increasingly turning to broadband service providers to provide IP services rather than managing them on their own internal corporate networks," said Janet Davidson, president of

Lucent Technologies InterNetworking Systems,

in a statement.

Lucent said the IP Service Switch 5000 complements Lucent's portfolio of data networking products. Citing estimates by analyst firm

Ryan Hankin Kent

, Lucent said the presently $660 million IP services equipment market will increase to $1.6 billion in a year and exceed $5 billion by 2003.

Spring Tide will become part of Lucent's InterNetworking Systems Group. Spring Tide president and chief executive officer Allan Wallack will maintain his positions, under Lucent. Steve Akers, Spring Tide's founder and chief technology officer, and Stephen Collins, founder and vice president of business development Stephen Collins, will also stay on board. Spring Tide's roughly 200 employees will remain intact, Lucent said.