Heavy Metals New Tune

Network hardware giants find an unlikely way to fight the economic slowdown.

At first glance, last year was a complete financial nightmare for Lucent Technologies. But take a closer look, and youll find a few Lucent employees smiling in fantasyland.

Indeed, portions of Lucents Software Solutions Group spent last Wednesday afternoon at Disney World. Unlike much of Lucent—which has stumbled badly in recent quarters—the software team was celebrating a blowout performance in 2000. Sources say revenue at the software group (www.lucentssg.com) is growing 50 percent annually.

Lucents push into software is hardly unique. Faced with a slowing economy, Lucent, Cisco Systems and Nortel Networks all are betting on software sales to pick up the slack.

The trio doesnt break out software sales data, but anecdotal evidence is impressive. Cisco hopes its software business will be a $1 billion operation within a year or two. Meanwhile, Nortels e-business software and customer relationship management (CRM) apps already generate roughly $1 billion in annual revenue.

Still, theres no guarantee that software will rescue networking companies from the economic slowdown. As reported, some CIOs are trimming their IT budgets—software included—because of the slowing U.S. economy (SP, Jan. 8, p. 22, www.smartpartnermag.com). Moreover, struggling DSL service providers—such as Covad Communications and NorthPoint Communications—are halting network deployments because of mounting financial losses.

A Little Nervous? Cisco CEO John Chambers doesnt exactly sound bullish. During a financial conference last week in Scottsdale, Ariz., Chambers conceded that the current quarter has been "a little more challenging" than expected. Chambers was upbeat about Ciscos long-term outlook, but somewhat coy about the companys near-term business prospects.

Meanwhile, growth is slowing at Nortel. The companys revenue surged more than 40 percent during most of 2000. But Nortel expects its 2001 sales to climb a more moderate 30 percent to 35 percent, according to recent statements from president and CEO John Roth.

The slight slowdown isnt cause for panic, but Nortel is tightening its purse strings. Just last week, the company disclosed plans to dismiss roughly 4,000 employees—or about 4.2 percent of its workforce—in order to remain nimble. Nortel will continue to hire staff, however, in growth markets like optical networking and wireless, according to COO Clarence Chandran.

The situation is far more desperate at Lucent, which badly missed its sales and income targets throughout 2000. Lucents board ousted former CEO Richard Mc- Ginn in October and business continues to slide. The company expects to report a "significant loss" for Q1, and new CEO Henry Schacht is working to trim $1 billion from Lucents annual cost structure. "Fiscal year 2001 will be a rebuilding year, a turnaround year for Lucent," says Schacht.

Soft Sell Part of Lucents turnaround will hinge on software. The companys product line includes development tools, systems management applications and fault-tolerance software.

The software business, built on the heritage of Bell Labs, appears promising. Indeed, Lucents software sales are growing 50 percent annually, says division manager Ed Cartier. He declines to discuss exact revenue figures for the group, but Cartier says he is upbeat about 2001.

Much of Lucents software was developed to manage the companys own network. For instance, Lucents Asset Management Tool (AMT) took inventory of 100,000-plus company PCs in preparation for the year 2000 date change. AMT integrates with Systems Management Server, Microsofts NT-based tool for electronic software distribution and remote administration.

Instead of selling its software directly to customers, Lucent often licenses source code to third parties like hardware vendors and software developers. Lucent will attempt to round up additional allies and customers during an asset management forum (www.lucentssg. com/semreg.html) on Jan. 24 in New York.

Early allies include Eracent, a Long Island, N.Y.-based startup that licensed AMT. Several Eracent employees are former contractors who worked on Lucents original AMT design team.

Eracent recently rebranded AMT as Asset Management Process, and sells it to businesses that need to keep close tabs on their servers and desktops. "Most of our early customers are Lucent-centric," says Andy Balmuth, VP of sales and marketing at Eracent. "But Im planning on putting together a channel sales strategy."

Prime targets for the tool include service providers and Internet hosts. "As companies like Digex and Exodus add more and more data centers, theyll need tools to keep track of all those servers and their security settings," asserts Balmuth.

Lucents software team also is keeping close tabs on the peripheral market, where the companys 6-D mouse may prove popular with CAD/CAM engineers and game developers. Unlike a traditional mouse, the 6-D mouse accounts for depth, letting users move objects up, down, left, right, in and out. An anonymous third-party company recently pitched the 6-D mouse to video-game giant ActiVision, according to sources at Lucent. ActiVision did not return calls seeking comment about the 6-D mouse.

Meanwhile, Nortel continues to refine its software strategy, which includes call-center software and CRM applications.

The company last week shipped Clarify eFrontOffice 10.0, a CRM suite that targets the telecom, manufacturing, retail and financial markets. Among other things, the suite helps customers to take, track and manage online orders. Nortel acquired Clarify early last year to serve as the cornerstone of its software push.

Hush, Hush Nortel doesnt discuss its quarterly software results, but a source on the Clarify team says the software group generates roughly $1 billion in annual revenue.

Nortels software sales are particularly strong in small business. "The application piece is really picking up for us," says Nick Pegley, VP of marketing for small-business solutions at Nortel. "Our smart partners lead with our call-center software solutions for small business. Networking hardware closes the conversation."

Meanwhile, Ciscos software push involves three 1999 acquisitions: Amteva, GeoTel and WebLine Communications. Amteva specializes in IP-based middleware that consolidates voice mail, e-mail and fax on a single IP network. GeoTels software targets distributed call-routing centers. And WebLine develops customer management software.

Senior VP James Richardson last year predicted that Ciscos software business would top $1 billion in sales by 2002 or so. Richardson was not available for comment last week.

But if everything goes as planned, network hardware companies will use software as a bridge to Tomorrowland.