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Lucent Shutters Chromatis Unit

Telecommunications equipment manufacturer Lucent Technologies is closing its Chromatis Networks unit, which had a manufacturing and R&D unit in Israel and sales/marketing/administration offices in Herndon, Va., because Lucent is dropping the product line that Chromatis made. Lucent paid about $4.8 billion in stock for Chromatis in late spring of last year.

Frank Briamonte of Lucent's Media Relations department said about 150 people would lose their jobs. Most of those employees worked in Israel, with the rest out of the Washington, D.C. metro-area office.

"As part of our restructuring efforts, we've had to reset our priorities and make some difficult decisions in order to maximize the opportunities with our large service provider customers," Briamonte said. "Given current market conditions and our renewed focus on the world's largest service providers, we have decided to streamline our metro optical portfolio."

Part of that streamlining is to exit the Metropolis MSX product line, which came over in the Chromatis acquisition, Briamonte said.

"Let me be clear, however, that we are not getting out of the metro optical space," he said. "We're merely sharpening our focus. Our Metropolis product portfolio will continue to offer both DWDM and next-generation SONET solutions. We feel the remaining products are best-suited to meet the needs of the world's largest service providers - the customer set on which Lucent has decided to focus."

Lucent bought then-private Chromatis in late May of last year for about $4.8 billion in Lucent stock. At the time, company officials said the acquisition would enable Lucent to bring the "bandwidth-expanding power of optical technology directly to its business customers."

Lucent exchanged about 78 million common shares for all outstanding Chromatis equity. While the deal was worth around $4.8 billion last year, a massive drop in Lucent's share price translates to the buyout being valued at around $590 million, going by Lucent's trading price of $7.58 a share towards the end of today's trading session.

Chromatis' flagship product, the Metropolis system, integrated data, voice, and video services together on metropolitan networks. The system combines the different types of network traffic onto a WDM system, which relieved network congestion by providing vast amounts of bandwidth in the form of multiple optical wavelengths that blast traffic through the network at the speed of light.

Murray Hill, N.J.-based Lucent is taking an overall charge of between $7 billion and $9 billion in the fourth quarter in its ongoing restructuring. While part of that money will be used in the closing of Chromatis, Briamonte said Lucent would not break out how much it'll spend on the unit.

Just last week, Lucent said it still plans to make money by the end of 2002, even as the rest of the telecommunications sector struggles with a sagging economy and diminishing revenues. In its mid-quarter conference call, Lucent officials said they believe the company's market will remain roughly flat for fiscal year 2002. Even so, Lucent expects to return to profitability a quarter ahead of when it achieves positive operating cash flow in fiscal year 2002, officials said.

In addition, Lucent said that the quarterly break-even revenue number for fiscal year 2002 would be approximately $4.75 billion. Lucent also expects this level to improve modestly, over time, as the remaining portion of the company's restructuring actions is implemented.

In terms of product direction, Lucent said that it was eliminating product redundancies and focusing its research and development (R&D) investment on the most important growth opportunities for its key customers, as part of its restructuring efforts. The company said it would aggressively invest in and deliver optical solutions for core and metro markets; packet data solutions (multi-service core, edge and access; circuit and packet voice solutions); second-generation and third-generation wireless solutions; and the software and services to support all of these solutions.

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