The Lucent-Alcatel talks: A changing industry, a changing state Telecom remained a force through glory and gloom By Joseph R. Perone; The Star-Ledger ~ Mar 26, 2006 After serving in the Marines, Dom Gurrera answered an ad for a job at Bell Labs in 1960 and drove to what he thought was the company's headquarters in Murray Hill. It turned out to be the research facility's military lab in Whippany. Gurerra was one of the bright young minds hired to work on electronics for the Army's Nike antiballistic missile system. He put a daughter through college, bought a Shore home and retired in 1994. "Bell Labs was the leader in everything, and they were always good to their employees," he said. "They gave you whatever you needed to do the job." Now, Lucent Technologies, the company that owns Bell Labs, is in talks to merge with French telecom equipment maker Alcatel. If control changes hands, Lucent employees can expect another year of dramatic change after 10 years of triumph and despair. During its meteoric rise in the late 1990s, Lucent was the champion of the tech economy, the darling of Wall Street and the pride of New Jersey. All of that changed with the crash of the telecommunications market at the end of the decade. Lucent's work force -- including 17,000 in New Jersey at one point -- was rattled by one round of layoffs after the next, and investors watched helplessly as the stock fell to a low 58 cents. Few companies have left such a mark on the state in recent years, for better and for worse. BULLET-PROOF PHONES AND NOBEL PRIZES Lucent and its predecessor, AT&T's Western Electric division, employed generations of New Jerseyans and provided valuable taxes for towns such as Murray Hill, Whippany, Kearny and Holmdel. "New Jersey was the intellectual headquarters for the telecommunications industry," said A. Michael Noll, a professor of communications at the University of Southern California. Western Electric once made bullet-proof phones and switches that made its brand name synonymous with reliability. The Kearny Works factory alone had 18,000 employees in 1954. "We got out of college, went to work for the Bell System and we stayed there," said Ken Raschke, president of the Lucent Retirees Organization. Bell Labs has been credited with more than 40,000 inventions since 1925. Researchers at The Labs, as they are known by insiders, won six Nobel Prizes, including the discovery of the "Big Bang" theory of the creation of the universe. Bell Labs scientists have developed military communications systems since World War I, and invented the transistor and laser, the first commercial mobile phone service and the first orbiting communications satellite. "When you walked around the Labs, you got the sense that there were a lot of guys working on really cool stuff," said Bob Struble, chief executive of iBiquity Digital, a Maryland company that was once part of Lucent Digital Radio. "It would not be possible to have an Apple iPod or satellite radio today without Bell Labs' audio compression technology." The research facility in Holmdel has a water tower shaped like a transistor, without which portable radios, TVs and computers would not be possible. Today, that campus is up for sale. THE GLORY DAYS Lucent split from AT&T with great fanfare in 1996. The re-named company's hand-drawn red circle logo was picked by former executive Carly Fiorina, who later became CEO of technology giant Hewlett-Packard. Lucent bombarded the public with its ad slogan: "We make the things that make communications work." Lucent, now based in Murray Hill, was adored by Wall Street during the 1990s, announcing one multibillion-dollar contract after another and making investors swoon with 20-percent increases in sales and 35 percent jumps in earnings. The company reached $38 billion in sales, and its stock price multiplied several times over. By 2000, Lucent had 157,000 employees worldwide, including 17,000 in New Jersey. Giddy Wall Street analysts would greet Chairman Henry Schacht and Chief Executive Richard McGinn during conference calls every quarter by saying, "Great job, guys." "In the 1990s, it was the definition of success," said Jeff Kagan, an independent telecom industry analyst. "Everybody was a Lucent customer. They were so big, and in so many businesses, and making so much money, that it was impossible to keep up with them." Everybody seemed to be a shareholder, too. At one point, Lucent was the nation's most widely held stock. Portfolio managers urged their clients to have Lucent tucked in their retirement funds, and many, including Lucent employees, loaded up on the shares. The stock hit a high of $84 on a split-adjusted basis on Dec. 9, 1999. By the third quarter of 1999, Lucent reported a surprising 50 percent jump in profit, and quarterly sales broke through the $10 billion level for the first time. But much of it turned out to be an illusion. THE SLIDE For one thing, Lucent had trouble with the production of optical networking gear made at a factory in Massachusetts. And to gain customers in a cutthroat business, Lucent had to give overly generous financing terms to its customers, sometimes loaning them money to get the contract. "They made a lot of commitments to customers that eventually went bankrupt," said George Calhoun, a professor at Stevens Institute of Technology in Hoboken, who worked in the wireless communications business for 25 years. Lucent also had trouble assimilating some of the companies it acquired, while the market for many of its products collapsed. The bottom started to fall out by January 2000, when Lucent announced it would miss Wall Street forecasts. After missing expectations a fourth time, the company's stock lost $180 billion in market value and Lucent's board fired McGinn in October of that year. Lucent racked up bad results as quickly as it had notched new contracts, with 13 straight money-losing quarters. The streak didn't end until October 2003. The company also cut thousands of jobs. Employment has dropped to 30,200 worldwide, including 6,438 in New Jersey. Chief Executive Pat Russo has won praise for restoring stability to the company, but until late Thursday night when word leaked about the Alcatel talks, Lucent was flying mostly under the radar. Now that it might become part of a French company, Noll, the professor, wonders whether the Lucent name will survive. "Maybe, they could call it Lucatel," he said. © 2006  The Star Ledger© 2006 NJ.com All Rights Reserved.   return to LRO HOME PAGE