Strategic Product Focus Discussion
November 7, 2001
- Frank D’amelio, CFO reviewed guidance given in October. Nothing new in that area. During the day he was asked several times about future guidance, etc. And was clear to tell the audience that Lucent’s goal today was that of products and not financial. The few things he did mention were as follows. Indicated the global market remains challenging. Expects global market to decline 15 – 20 % in last calendar quarter. He said if was forced to discuss the industry he would gather that the numbers would come closer to 20 % decline. He projects that Lucent is guiding towards a 10 % quarterly decline.
- Bill O’Shea, President Bell Labs, discussed that market dynamics have changed a bit since August. The global market for Lucent remains large and attractive. The entire Lucent possible market will spend about 200 million next year. This is down from year 2001, but still quite large. He said that the lack of visibility continues (this includes the short term as well). He mentioned that the short term looked “challenging yet large “ and the long term looked “attractive with growth”. He mentioned that the large Service Providers would lead the eventual growth. He described that Lucent is trying to establish themselves as the full end-to-end solution partner of choice. He explained the focus of Lucent in two key areas as Integrated Network Solutions (INS) and Mobility Segment (which I thought sounded unexpectedly great…basically combining the PC, Cell phone and PDA in a very quick, very affordable manner, via 3G). He explained that Lucent is offering a complete portfolio of products. Need to remove the complexity from the networks. Envisions a heterogeneous network, which knits Lucent products seamlessly together (including 3rd party equipment). Lucents’ R&D remains the largest in the world for Service Providers. He made a great statement. He mentioned that over history Service Providers (i.e. ATT, Verizon, Sprint) spend a range of 10 – 20 % (probably closer to 20 %) on Capex (Lucent and its competitors are the recipients of this capex). This range is a range of sustainability. He expressed future revenue growth of 10 – 12 % and that is in F2003 (assuming Phase II continues to move along on schedule.). He claims that the Internet has grown from the beginning and continues to grow now at a rate of 75 – 125 % annually (he said there was a short period in the mid 90’s where the rate increased, yet he indicated much of that was hype.). Sees eventual industry growth of 10 %.
- Lucent wants to provide all services for their vision of the network.
a)Decrease deployment time
c)Wants Lucent to be the lowest cost per bit provider
- Springtide is a very important product. This dynamically provisions IP/VPN. Customers are asking for this and it is a much sought after product.
- Janet Davidson, President of Integrated Network Solutions.
a)Believes growth will come back after overbuild and excess inventory settles.
b)Metro market has not been overbuilt. Metro creates a bottleneck. This is known as the Last Mile. Last mile is expected to get faster.
c)Core Optical Market is $ 16 billion
d)Expects to remain as the market share leader of optical worldwide. She emphasized that this was before the deployment of new products.
e)Explained the new Ultra Long Haul (ULH) product Lambda Extreme can go 4000km (128x10G)(1.28 T). It is based on Soliton and Raman technologies with programmable optical add/drop and built in service intelligence. Lucent claims the longest reach at 40G and lowest 40G cost per wavelength. Claims it can start at 10G and upgrade to 40G is simple. Ties together muxers and optical cross connects into one system. Says typical office, a carrier could expect to save 1.5m in Cap-Ex, 15 bays of equipment, and space/power savings of $18K per month.
f)Metro market is not retracting, it is growing.
g)Metro DWDM is cost effective vehicle (please go to website to determine, I am getting exhaus
h)My thoughts at this point of the program were that it seems that Lucent is focusing on easily changeable products. Lots of plug and play and can work with just Lucent stuff or seamless integrate with 3rd party systems.
i)Some last mile products were released within the last few weeks and traction is already occurring.
j)Claims that contrary to popular belief Lucent has an end-to-end IP portfolio.
- Jim Brewington, President of Mobility Systems Group
a)PC and phone are coming together at lightening speeds. It will make Lucent tons of money. Says market will be $ 95 billion by 2006.
b)Feels trend of low cost voice will continue.
c)Lucent is totally committed to 3G (3rd generation wireless).
d)Says Bell Lab workers are the best in the world, hands down. Says they are working on new techniques for Voice over IP.
e)Raved about product called OneBTS. Claims it is a money making machine. (He apologizes to the crowd, but he loves it so much he needs to stand in front of the screen and admire the OneBTS, claims he had many pizzas and cokes as he helped develop the product). Says if in 5 years carriers don’t have the OneBTS then they are in trouble. Claims it is the best radio access platform in the world. Says margins are great. Based on advanced electronic components to ensure less materials and hence less costs. It will be able to share UMTS and CDMA platforms. It will have a smart antenna.
f)Claims he has never been more confident on Lucent’s choices in mobility solutions. He said, “There has never been a more exciting time for this exploding industry.”
- Henry Schacht, Chairman and CEO
a)His regime has been in charge for about one year now. Since he has been in charge all they have discussed was distressed financials and cures for distressed financials, but they never discussed the products that would remedy the ailments. b)Today was the day to discuss their product portfolio.
Does not underestimate how challenging this market is. The visibility is murky; there is no visibility for Lucent or anyone. Yet, although we are in a period of retraction, there is still big money, which exists. Underlying strength is the $200 billion dollar industry.
c)Lucent wants to offer volume, low cost and reliability. Wants to give customers lower cost and capacity, so they can generate revenues. He feels that Lucent can garner higher margins and customer lower costs if high volumes can be achieved. That is why they are focusing on the 30 largest companies that control 75 % of the total funding in the industry.
d)Wants Lucent to service intelligent architecture.
- My thoughts are that the meeting was a success. We now have to research and determine if these new product offerings and if Lucent’s perception of the future in communications is in sync with our never-ending research and thoughts. I suspect that many in the community will both applaud and criticize Lucent for their direction. I will be doing a lot of research in the immediate future to attempt to determine if the Lucent vision is what I perceive to be the future of the communications network. My gut feeling is that the answer will be a resounding yes. I was impressed with the meeting (I even participated with a question on their LambdaRouter, which Lucent claims as the only optical switch in deployment. They admitted they have made an error in that terminology and continued to answer my question about their all-optical switch, which now will be based on Raman Amplification (that is what Corvis uses). I look forward to the reports that will follow. Many of you who read this will not understand much of the terminology. This is difficult terminology and impossible to understand without the proper background. I have been researching this for about 17 months now, and I am barely technologically literate 😉 . If you do have questions and you received this via an email, please just send me or call me with a question. The reason I send these reports is because a few people who get the notices are able to use them in their research. Clients, friends, investors, optic professionals, research analysts and other industry professionals view these notes.
Ronald R Redfield CPA, PFS
November 7, 2001
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