Lucent Acquires Ascend and Fiber-Class ATM Platform for $20 Billion
By Erik Kreifeldt
Following through on a series of acquisitions to beef up its data networking portfolio, Lucent Technologies plans to acquire Ascend Communications in a stock swap valued at $20 million. The deal gives Lucent access to carrier-class asynchronous transfer mode (ATM) technology that sports 2.5 Gbps interfaces—a major throughput milestone for data gear that opens up optical networking opportunities.
Lucent is acquiring Ascend to strengthen its ability to supply carriers all the technology they need to build multiservice networks, or those that integrate data and voice services (which traditionally involve separate networks). Like its rivals that contribute to telecommunications industry consolodation, Lucent is acquiring the expertise it does not already have to create a one-stop shop for multiservice network technology, thereby bolstering its competitive advantage.
A key element for the multiservice network equipment portfolio is Ascend's GX 550 ATM Core Switch product line, which commands top market share, according to Lucent. The switch, which was already part of Lucent's portfolio as part of an OEM agreement, has 2.5 Gbps interfaces that enable carriers to run ATM traffic directly over DWDM—a popular network architecture that saves money by skipping SONET multiplexers.
Lucent will fold the Ascend operation into a new division that focuses on multiservice networks, the Broadband Networks Group, which will also include Lucent's Optical Networking, Data Networking Systems, and Communications Software groups. Lucent Chairman and CEO Rich McGinn heralds the group as by far the largest broadband networking business in the world.
Dan Stanzione, Lucent's chief operating officer and group president, will head up the Broadband Networks Group, and remain in charge of Bell Labs. Ascend's President and CEO Mory Ejabat will stay with Lucent for a transition period. McGinn expects to close the deal in May 1999.
"Just as our customers are converging their networks, we are converging internally," says Stanzione. Combining communications services into a multiservice network involves more than data and Internet equipment, he explains, citing optics, software, and engineering services. Ascend and other acquisitions "will allow us to compete in places where Lucent has been less strong and introduce new products," he concludes.
In addition to equipment, Ascend also brings with it a client list that fills out spaces in Lucent's customer base that are "less strong," including MCI/WorldCom, Sprint, Williams, and PSINet.
While expanding its capability, acquiring Ascend enhances Lucent's core business of supplying service providers more than the enterprise market, McGinn says, adding that Lucent will continue to bolster its service provider business before it devotes more resources to its $8 billion enterprise market. Some two-thirds of Lucent's $30 billion in 1998 revenue came from the service provider area, McGinn says.
A carrier market focus also differentiates Lucent's Ascend acquisition from rival Nortel Networks' acquisition of Bay Networks, says Ascend's Ejabat. Bay was more of an enterprise network vendor that rivaled Cisco Systems, Ejabat says, whereas Ascend's competency is in the core network, a space in which Cisco is still trying to establish itself. Some 90% of Ascend's revenue is from service providers, he says.
As Lucent closes the Ascend deal after a history of promised acquisitions, McGinn cites "many other gaps to fill" and anticipates more acquisitions that are "fundamental to the deployment of broadband networks." Although not heralding a new acquisition, McGinn says "looking at the optical space" is on Lucent's broadband agenda.