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Lucent Snatches Network Switching Firm

Lucent Technologies Inc. Tuesday bought network switching supplier Spring Tide Networks for $1.3 billion in stock.

Lucent will offer 26.8 million shares and options for the privately-held company, based on the closing price of $50.13 for Lucent stock on July 24. Lucent already owns a 4 percent stake in Spring tide.

Spring Tide's core business is to create network switching equipment that allows service providers to offer customers a portfolio of Internet Protocol services such as virtual private networks.

Spring Tide claims its equipment delivers up to four times the scalability and performance of competing products on a proven platform for IP services, while supporting a variety of network connections -- wireless, broadband, DSL and cable, as well as traditional wireline access.

Chief among its products is the Pipelined PacketFlow design, from which the IP Service Switch 5000 has the processing capacity to route tens of thousands of users simultaneously. In fact, Tuesday's deal builds on a December 1999 agreement between the two firms in which Lucent licensed Spring Tide's IP Service Switch 5000.

"Businesses are increasingly turning to broadband service providers to provide IP services rather than managing them on their own internal corporate networks," said Janet Davidson, president of Lucent Technologies InterNetworking Systems business. "Spring Tide's solution helps service providers deliver more value from their networks..."

According to analyst firm Ryan Hankin Kent, the current figure of a $660 million IP services equipment market will increase to $1.6 billion over the next year, and exceed $5 billion by 2003.

Not surprised by the deal was Ian Mashiter, founder and senior vice president of marketing of Ennovate Networks Inc., a switching firm that is in direct competition with Spring Tide and others in the sector.

"Lucent did not have much choice in the matter," Mashiter said. "It needed to stake a position in the IP services market and an acquisition was the quickest and most cost-effective way to do this. The premium Lucent paid simply illustrates the value of companies developing this kind of next-generation networking technology."

Mashiter pointed out that Ennovate is choosing to raise shareholder value by remaining independent.

"The advantages of remaining independent -- agility, flexibility and responsiveness -- are the prerequisites for remaining a leader, not a follower, in this industry," he said.

For Lucent, the deal is the latest of a three-way volley between the other top two network suppliers -- Cisco Systems Inc. and Canada's Nortel Networks.

The three companies, led by Cisco's looming presence, have been on a tear this past year, buying smaller networking and products firms, inking multi-million supply and service contracts, as well as dipping into the networking well overseas.

As of late, Lucent had been the more quiet of the three, with Nortel Monday inking an estimated $2 billion service deal with powerhouse British Telecommunications Plc., and Cisco announcing the creation of a manufacturing plant in Dublin that would create 3,000 new jobs.

Last week, Lucent said it would spin off its chipmaking and fiber-optics component business in the hope of taking it public.

Allan Wallack, Spring Tide president and chief executive officer, will stay on with Lucent, as will Founder and Chief Technology Officer Steve Akers and Founder and Vice President of Business Development Stephen Collins. Spring Tide will become part of Lucent's InterNetworking Systems Group.

Lucent expects the deal, which will be accounted for as a purchas