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Lucent Shuts Down Chromatis Networks

Restructuring: Company says its new strategy in shifting market conditions prompted the closing of the Israeli unit.

August 29, 2001|STEVEN SCHEER | REUTERS

JERUSALEM — Lucent Technologies Inc. said Tuesday that it closed its Israeli unit, Chromatis Networks, which it bought last year for $4.5 billion in stock, because the unit's focus on small customers does not fit Lucent's new strategy to serve large telephone companies.

The acquisition of Chromatis in May 2000, when Chromatis shares were trading at $58 a share, was the largest takeover in Israeli history.

But Lucent's stock has plunged as the company suffered billions in losses due to manufacturing and product development blunders, management turnover and intense competition in the weak telecommunications market.

On Tuesday, Lucent's shares rose 27 cents to close at $7.60 on the New York Stock Exchange.

The Chromatis shutdown is part of Lucent's push to return to profitability next year by cutting costs, streamlining its product mix and focusing on its 30 largest customers, which generate 75% of its revenue.

"We have taken a number of steps to eliminate redundancies," said Harald Kettenbach, a spokesman for Lucent in Bonn.

"We have come to the conclusion that, in current market conditions, we will have a renewed focus on the world's largest [telecom] service providers . . . so we decided to streamline our optical portfolio," he said. Lucent will concentrate on sales to telecom giants, such as AT&T Corp., Verizon Communications, Deutsche Telekom and Vodafone Group.

Murray Hill, N.J.-based Lucent said it will take a charge in its fiscal fourth quarter to cover the cost of closing Chromatis. The business had 150 employees, most of whom worked in Israel. The charge will be part of the $7 billion to $9 billion total Lucent expects to take in the quarter ending Sept. 30 for restructuring.

Lucent bought Chromatis to boost its presence in the optical networking market. Chromatis made gear for urban areas, which had been a weak spot in Lucent's product mix. Chromatis' key Metropolis product allowed multi-service traffic, such as voice, data and video, to travel efficiently on crowded metropolitan networks.

Under its new strategy, Lucent decided to eliminate the Chromatis product line because it catered to small upstarts, or competitive local exchange carriers. Many of these emerging carriers have buckled under massive debt and declared bankruptcy, or ceased operations.

"The environment in financial markets has gone from day to night," Kettenbach said. "There was clearly a niche that was to be filled by Chromatis, but market changes and the focus on large service providers led us to take this decision."

Lucent still will make metropolitan networking products for large carriers. Nearly 20 large customers have either deployed or begun trials for the remaining products in its metro portfolio, "which supports our decision to exit the Chromatis platform," Lucent spokesman Bill Price said.

Lucent last week said it expects a rebound in profit next year as it restructures, slashes its work force nearly in half, and shifts its focus to more lucrative, large customers.

Lucent still will maintain a presence in Israel. The company will continue to support customers, but will shift from a direct-sales model to an indirect-sales model using Lucent's partners, he said.

Israel represents only a small piece of Lucent's revenue. Some 65% of sales come from North America, with the rest largely from Europe.

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