Lucent’s Spin-off Is Born to Shop

Gaynell Terrell

As Lucent Technologies Inc. spins off its microelectronics business next year, the infusion of cash from a public stock offering will position the yet-unnamed company to buy new technology to compete with components rivals. This could set off a new round of high-tech acquisitions comparable to the yearlong spending spree of major competitor JDS Uniphase Corp.

"Absolutely yes, we're looking to acquire technology," said John Dickson, CEO of Lucent's Microelectronics and Communications Technologies group, naming passive optical components as one such area.

The spin-off could also signal another trend, that of more optical public offerings down the road. After Lucent's announcement, optical incubator MRV Communications Inc. of Chatsworth, Calif., filed for an offering for its (active and passive) optical components unit, Luminent Inc. And Nozay, France-based telecommunications company Alcatel announced that it would establish a new tracking stock for its optical components business.

Lucent put an end to months of market rumors and announced July 20 that it is planning an initial public offering for up to 20 percent of the new company and will spin off the remaining shares in a tax-free distribution, all by next summer. "The micro strategy in Lucent was focused on telecom. Lucent never wanted to be a [telecom] components manufacturer," said Richard McGinn, company chairman and CEO.

The new company, to be headquartered in Allentown, Pa., comes with a creditable pedigree, reporting revenues of more than $1 billion last year. It will keep the 3000 Bell Labs engineers dedicated to the optical group.

By spinning off the microelectronics and communications semiconductor group, Lucent seeks to concentrate on its optical, wireless and data build-out while giving the spin-off better visibility and favor with stockholders -- not unlike Palo Alto, Calif.-based Hewlett-Packard Co.'s spin-off of its test and measurement division, Agilent Technologies Inc.

Officials said they hoped that the stand-alone microelectronics group would win more confidence from current customers such as Nortel Networks Corp. of Brampton, Ontario, Canada, Ciena Corp. of Linthicum, Md., and Alcatel, all competitors with Lucent in the communications systems business. About 75 percent of the group's sales already come from competitors, but Lucent is its largest customer. The fiber, cable and specialty fiber business will remain with Lucent.

Ironically, Lucent in its role as customer has an opportunity to comment to antitrust regulators on supplier JDS Uniphase's proposed buyout of supplier SDL Inc. of San Jose. Those companies are already formidable rivals to the spin-off. "Spin-offs and acquisitions are just part of doing business these days. The regulators would understand the position that Lucent is in," allowed spokesman Mary Ward.