Lucent Technologies Inc. last week pulled off what could be seen as a major coup with the announcement that it plans to acquire Excel Switching Corp., the Hyannis, Mass.-based developer of open programmable switching platforms.
“It certainly gives Lucent a leg up in the market, because service providers are increasingly interested in offering enhanced services to their customers as a way of differentiating themselves,” said Eric Zimits, an equipment analyst at Hambrecht & Quist L.L.C.
Excel’s open programmable switching products enable such enhanced services and are a stark contrast to the closed, proprietary, application-specific switches equipment vendors traditionally have offered, said Zimits.
“I’m of the opinion that this is going to really be critical to an equipment provider’s ability to compete in the future-to offer flexible open products like this,” said Zimits.
Terms of the agreement call for each share of Excel to be converted into .558 shares of Lucent. Based on Lucent’s stock closing price of $66.50 Aug. 17, the transaction is valued at about $1.7 billion, or $37 per Excel share.
The transaction is expected to be completed by the end of the year and will be accounted for as a pooling of interests.
“For service providers, time to market counts,” said Dan Stanzione, executive vice president and chief operating officer at Lucent. “With Excel, our customers will have one of the fastest ways to bring new voice and (Internet Protocol) services to market.”
Lucent said Excel has more than 100 software developers, value-added resellers and original equipment manufacturers creating enhanced services-such as prepaid calling cards, follow-me services and unified messaging-and infrastructure applications-such as gateways for international networks, IP networks and virtual private networks-on the Excel platforms.
Lucent said benefits of Excel’s platforms include scalability and the ability to operate across multivendor networks.
“There’s a broader opportunity here for what the industry is starting to call next-generation media gateways, which is kind of a fancy term for open platforms like this,” said Zimits. “There’s a number of venture-backed start-ups that are pursuing this opportunity, a couple of which that have been acquired recently.
“Excel was distinguished in the sense that they really were far ahead of the market with this product capability,” said Zimits, who noted Excel’s closest competitor in the market was Summa Four Inc., which was acquired last year by Cisco Systems.
“They were a distant second to Excel in this marketplace,” said Zimits. “Most of the other players, while they may have some entry into the market, really don’t have a market share yet.”
One of Excel’s major distribution points has been large manufacturers. The company previously had worked with Lucent, Motorola Inc. and others. A spokeswoman for Excel would not comment on contracts the company has with other equipment vendors or what effect the Lucent transaction might have on those relationships.
“The other side of this is Excel’s business was increasingly oriented directly toward the carriers, and that’s really what Lucent saw,” said Zimits.
“I think Lucent’s going to do quite well with this product,” he said. “Excel was doing quite well on a stand-alone basis, but I think when you combine Excel’s technology with Lucent’s ability to focus marketing, customer support and, most important, financing, you could probably see accelerated uptake of this product.”
