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Lucent takes a capital step
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February 18, 1998: 1:06 p.m. ET
Telecom titan plans a venture capital unit to blaze trail on high-tech frontier
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NEW YORK (CNNfn) - Training its radar on the telecommunications market it already dominates, Lucent Technologies said Tuesday it plans to invest $100 million in a start-up venture capital fund designed to track innovators on the high-tech frontier, with an eye towards future partnerships, joint ventures and mergers.
The new subsidiary, Lucent Venture Partners Inc., will focus on cutting-edge technologies in high-growth areas including wireless, data networking, semiconductors, communications software and professional services.
The announcement coincided with news that Lucent's directors have approved a two-for-one split of the company's stock, the second most widely held in the U.S. after AT&T.
After the split -- Lucent's first since an initial public offering in April 1996 that raised $3 billion -- outstanding shares will double to 1.3 billion, and be electronically credited April 1 to shareholders of record March 6. The quarterly dividend rate, currently 7-1/2 cents a share, will be raised to 4 cents on the split shares.
The concept behind the venture group, according to its general manager, John Hanley, is to locate cutting-edge, "niche" areas in communications marketing that gel with the work being done at Bell Labs, Lucent's research and development arm.
"This venture will give us early insight into the technologies, products and companies developing outside Lucent's walls that can help support our growth," said Rich McGinn, Lucent's chief executive officer, who also succeeded Henry Schact as chairman Wednesday.
Schact will become chairman of the new venture group.
The group will establish a physical presence on both the East and West coasts. But it hopes to zoom in on investments opportunities wordwide, company officials said.
Murray Hill, N.J.-based Lucent, the former Bell Labs, is a telecom leviathan that has steadily hiked its market share since AT&T spun it off in 1996.
For the first quarter of fiscal 1998, ended Dec. 31, Lucent posted a 31 percent jump in operating earnings to $1.12 billion, or $1.72 per diluted share. Those numbers marked a record and were a significant spike from the year-before earnings of $859 million, or $1.35 a diluted share.
Analysts saw Lucent's foray into venture capital as a logical investment, given the breakneck pace of innovation in the industry.
"A number of companies do some form of seed development," said Michael Neiberg, an analyst with Furman Selz LLC. "The life-cycles of some technologies now are really quick and it's sometimes easier to invest in a seed company" than do the research yourself.
Neiberg said Lucent spent close to $3 billion on R&D in fiscal 1997. The longer-term effect of the venture capital group, he said, is that Lucent will be able to zero-in on good investments with greater expertise and facility than the lay investor.
"They know what technologies they need and maybe they'll be able to help fund or start up" a company, he said.
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