Can Lucent Survive on its Own?

Vive la Lucent. But will it be a life worth living?

For those who cringe to think of Chrysler as a German company, it may come as a relief that Lucent Technologies has chosen not to sell its proud American heritage to a French rival.

But pride aside, it's hard to overlook the desperate straits that Murray Hill-based Lucent seemed to be fleeing in discussing a merger with Alcatel SA — and still faces now that the marriage is off.

Right away, it's back to a wrenching reorganization in a rather tough economic environment: a plan that calls for spending cuts of $2 billion a year, mostly by eliminating 16,000 jobs, and paying off more debt, which the communications equipment maker reduced by a third to $5.4 billion during the first three months of the year.

In particular, that means Lucent will be trying to sell off a business that makes fiber-optic cable at a time when it's virtually impossible to fetch top dollar for anything on Wall Street.

Then there's the question of whether the former AT&T unit and its prestigious Bell Labs research unit have fallen behind technologically amid the distractions of a wicked financial tailspin that began in late 1999.

Without a dramatic IBM-like turnaround, Lucent may soon find itself joining the sullen ranks of fallen U.S. business icons such as Xerox, Motorola and even AT&T, its good name and reputation hardly worth protecting from foreign hands. The pressure on Lucent is especially keen since it has the second most widely owned stock in the country, with 5.4 million shareholders, nearly half of them individual investors.

The company, of course, is adamant that the viability of its recovery strategy was never in doubt, rejecting any suggestion that the attempted merger with Alcatel might be seen as a distress call.

And while Lucent officials say the deal fell through because Alcatel was seeking an acquisition rather than a merger of equals, they dismiss the notion that ego or pride was allowed to get in the way of an otherwise great opportunity.

"If we had concerns about the restructuring plan, we would not have walked away from the Alcatel deal," Henry Schacht, Lucent's chairman and chief executive, said Friday in an interview with The Associated Press.

The logic behind a merger with Alcatel was an opportunity "which allowed both companies to become a more global and robust company than either could do on its own," Schacht said. But, he said, "The decision to move back away from Alcatel when we decided it wouldn't work is based on a strength of conviction" about the course Lucent was already pursuing without Alcatel.

In particular, Schacht stressed the market's generally positive reaction to Lucent's last quarterly report, which showed a 36 percent improvement in revenues from the preceding quarter and a 5 percent gain in profits.

However, Wall Street analysts are sharply divided on Lucent's prospects in a sluggish market for communications network equipment where aggressive young companies are failing, allowing bigger players to cut back on investments in new technology.

On Friday, for example, a once highly regarded company named PSINet joined the growing list of up-and-comers who have filed for bankruptcy protection. For Lucent, the most prominent of those names is Winstar Communications, an operator of a wireless network providing high-speed Internet access, which owed Lucent $700 million when it filed for bankruptcy in April.

Without strong demand from upstarts, Lucent will be relying even more heavily on the major telephone companies, core customers who began buying more from rivals when Lucent failed to gauge their demand for more advanced equipment.

To that end, the company has been whittling down its product lineup so it can speed the launch of next-generation technologies, hopeful it can match the agility of smaller equipment makers focusing on specific markets.

"There's a tremendous amount of smart people and state-of-the art technology at Lucent, but they've made some wrong technological bets" said Bruce Sachs, a venture capitalist for Charles River Ventures who started his career with Bell Labs at AT&T and later served as CEO of a company that's now part of Lucent.

According to Sachs, the key to Lucent's future may lie in the ongoing search for a new CEO to replace Schacht, who came back from retirement after Richard McGinn was forced out last year. Both are businessmen rather than scientists, he said.

"The wheels fell off at Lucent long before the current economic downturn," said Sachs. "I'm very biased. I think technology companies need tech-savvy leaders. McGinn wasn't, and neither is Schacht."

Schacht, however, said the company wouldn't hesitate to hire a more business-oriented executive.

"My view has always been that you go with the best athlete — wise human beings who can (motivate) others to do things," he said, referring to approach taken by many sports teams when selecting players in a draft.