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SAN FRANCISCO -- While Lucent (LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report blew it this time, its roster of acquisitions will keep it in the race with Nortel (NT) .

Lucent's short-term troubles give the most dramatic evidence yet that traditional telephone carriers are shifting their investments into new technologies, especially systems based on the Internet and optical fiber. Because it couldn't increase manufacturing quickly enough, Lucent lost business to rivals such as Nortel. Since the Thursday afternoon announcement, Lucent stock has slipped 20 3/8, or 28%, to 52, on staggering volume. Meanwhile, Nortel has climbed 24, or 31%, to 101.

But in the longer term, Lucent has lost little ground in its race with Nortel to become an Internet company. Both suppliers have embarked on equally well-conceived acquisition strategies and filled their product lines. In the coming years, they intend to face off against


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, the data-equipment leader that is branching into telephone systems.

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


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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


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.