Lucent spins off phone switching businesses

Lucent Technologies plans to spin off its phone switching businesses to concentrate on fibre optic and internet equipment.

The telecoms giant will form a separate company from its private branch exchange, Systimax structured cabling and Lan-based units. The new company will employ 34,000 staff or 23 per cent of Lucent's existing workforce.

Richard McGinn, Lucent's chairman and chief executive, said the move would enable the supplier to focus on making internet and telecoms equipment for large companies, a space in which it will compete with Cisco and Nortel Networks.

"We will concentrate greater resources on fast growing areas such as optical networking, internet infrastructure, wireless, semiconductors, optoelectronics, web-based enterprise solutions linking private to public networks, and professional design and consulting services for service providers and enterprises," said McGinn.

The divisions that will be shut down generated $8bn (£5bn) in turnover for Lucent in the 1999 fiscal year, while the rest of the company's business generated $30bn. Germany's Siemens AG and Nortel will be the new company's biggest competitors.

Sales from Lucent's fibre-optic parts business rose by 83 per cent last year compared with the 1998, while the units the company is shedding saw growth of only eight per cent. But McGinn said that he expects the supplier's revenue to increase by about 17 per cent this year.

Paul Sagawa, an analyst at Sanford Bernstein & Co, said: "The businesses being spun off have been something of a drag on overall Lucent results. This makes the resulting Lucent an extremely vibrant growth engine."

Lucent said that it expects the spin-off, which has been approved by the board of directors, to be completed by 30 September. It will be accomplished through a tax-free distribution of shares to Lucent's shareowners.

The company's share price soared on the news, rising 14.29 per cent to close at $68 in trading of 76.9 million shares.