Lucent Technologies Inc., the equipment division spun off by AT&T Corp. last year, and Netherlands-based Philips Electronics N.V., one of the world’s largest electronic companies, announced plans to combine their consumer phone equipment operations in a joint venture sure to create the largest phone supply operation in the world with a combined turnover valued at more than $2.5 billion.
The company, to be called Philips Consumer Communications, will develop, manufacture and market corded and cordless phones, digital and analog cellular phones, answering machines, screen phones, pagers and other mobile electronic devices. All products made by the new company will have the Philips brand name.
While effectively making the company the world’s largest provider of household landline telephones, the venture also places the new company in position to compete at a greater level in the global digital wireless handset market.
Lucent Technologies spokesman John Skalko would not directly say the move was designed to compete with wireless handset equipment big boys Ericsson Inc., Nokia Corp. and Motorola Inc., but did say it was looking to produce equipment servicing the same technologies the others do.
“Our purpose for merging was to enjoy the economy of scale that two small players bring to the market by joining resources,” Skalko said.
Lucent has been developing Code Division Multiple Access and Time Division Multiple Access handsets for some time, the newest of which he said should be ready for the market by the end of the year. He also said that Philips is the fourth largest manufacturer of Global System for Mobile communications handsets in Europe. Combining these two technologies is key to the deal.
“In effect, the new company will have the product to serve the three major wireless technologies in existence today,” Skalko said.
Lucent Technologies Executive Vice President and Consumer Products Business President Carly Fiorina said the company will “hit the ground running” with some 40 new products, from cordless to cellular handsets with the “longest talk and standby times” in the industry.
Skalko could not comment on what percentage wireless technology products will make of the new company’s total sales, but said the company expects to be a “significant” player in the market.
Industry analyst Peter Bernstein, president of Infonautics Consulting Inc., in Ramsey, N.J., said that while both firms have competed with Motorola, Ericsson and Nokia, the joint venture “ups the ante a bit,” by allowing Lucent the “deep pockets” provided by Philips.
“What’s significant here is the amount of marketing muscle, meaning dollars, being pushed into the U.S.,” he said.
Lucent manufactures and sells service networks, communications systems and software, electronic components and telephone systems for both consumers and businesses, including analog and digital cellular phones. Long a heavy-hitter in high-tech phone parts, the company has been struggling with its consumer products division, which has not proven competitive ever since its products stopped selling under the AT&T brand name.
“Lucent, by themselves, had trouble getting handsets out,” said Jane Zweig, senior vice president at Herschel Shosteck Associates Ltd., a cellular telephone market analysis company based in Wheaton, Md. “They have great research and development, but had problems getting products to market and selling them.” As of September, she said, the company had only a 1.6 percent market share.
Enter Philips, which has a proven consumer product line, giving Lucent enormous distribution opportunities and a recognizable brand name to sell under again. Philips is one of world’s largest electronics companies, with consumer products such as Magnavox color television sets and Norelco electric shavers. The company tends to distribute its goods together in complete packages, combining several brands in a sale. Now Lucent’s handsets can piggyback along with those mass-marketed items.
This is especially significant in that the mobile handset market is growing increasingly consumer-oriented. The other players, Motorola, Nokia and Ericsson, all have a more traditional distribution method.
“This is a big announcement,” Zweig said.
But Lucent is not the only one benefiting from the deal. Philips is the fourth-largest European manufacturer of digital and analog cellular phones based on GSM, with plans to get bigger.
“I think worldwide, Philips intended to be a in the global electronic market,” Bernstein said, and to do so needed a significant status in the United States. This joint venture gives it that.
Also, Philips now has access to Bell Labs and the infrastructure business provided by Lucent, as well as access to CDMA phone technology.
Given this, the joint venture is seen as being equally advantageous to both parties.
Bernstein said both had “extraordinary needs” that have been met by the deal.
“I think this looks pretty balanced,” he said.
Philips will hold 60 percent of the shares and Lucent Technologies will hold the remaining 40. The deal is scheduled for completion by October. Its headquarters will be in New Jersey, with regional offices worldwide.
Mike McTighe, managing director of Philips Consumer Communications division, will be the chief executive officer.
The venture jolted Lucent’s stock $2.13 the day it was announced to $69.75.
