Future Now Uncertain, Bell Labs Turns to Commerce
Storied Font of Basic Research Gets More Practical Focus
Amid Worry Over a Merger. Mr. Kim's 'Totally Crazy' Idea
By Sara Silver
The Wall Street Journal
Monday, August 21, 2006
Lucent Technologies Inc.'s Bell Labs, the birthplace of the
transistor and the laser, has been through a decade of
turmoil during which it was reduced to a third of its size.
Now, some of its scientists are warily embracing a former
submarine officer and entrepreneur as perhaps the
laboratory's best hope of maintaining its relevance.
Jeong Kim took over last year with a direct plan for saving
the storied laboratory: Make it profitable. Among his
first moves, he set more of its scientific stars to work on
breakthrough technologies that could turn quickly into
businesses -- the opposite of the pure research many live
Each of these projects is expected to make back six times
what it spends on research. Those with the biggest
financial potential get the most funding. Researchers often
condense their work into eight-minute PowerPoint
presentations. Mr. Kim also seeks more government research
grants and is aiming to speed the transformation of
technology into products by seeking corporate partners and
In earlier days, Bell Labs' scientists might have rejected
Mr. Kim's commercial approach to science. Not now.
Industrial labs have been losing clout for years as
corporate parents looked askance at spending money on
research that offered little immediate return. And in
addition, Lucent is planning to merge with Alcatel SA of
France, a company that doesn't do the kind of fundamental
research that made Bell Labs famous. "Bell Labs does
research with a big "R"; Alcatel does research with a
little "r," says Niel Ransom, Alcatel's chief technology
officer until 2005.
The deal has stirred anxiety among scientists about what
will happen if Alcatel, whose shareholders will own 60% of
the combined company, asserts control. Some Bell Labs
scientists, worrying that their jobs could be among the
9,000 expected to be cut after the deal is completed, are
scouting for new work.
Lucent Chief Executive Patricia Russo, slated to lead the
combined company, says that it has "absolutely no intention
of separating Bell Labs from the company" and won't
undermine the labs' research. "Bell Labs will be an
integral part of the combined company and is critical to its
future success," she says. "Our goal is to leverage its
critical capabilities so that research can seamlessly flow
from our labs into commercial applications in support of our
Executives of Alcatel decline to say where Bell Labs will
fit into the combined company, though Alcatel's chief
technology officer, Olivier Baujard, says Alcatel believes
"research is a balanced mix of advanced and applied
As Sept. 7 shareholder votes on the deal near, some
investors have been selling Lucent stock, suggesting they
aren't sure the deal will go through. Since word of it
became public in late March, the stocks of both companies
are off nearly 20%, though both regained some ground last
week. Some analysts in Europe suggest Bell Labs' classified
research could be a sticking point for U.S. regulators, but
Lucent says it plans to create a U.S. subsidiary to handle
such work, as other firms have done.
Over eight decades, Bell Labs produced a series of seminal
inventions, including the solar cell, the electronic
microphone and the digital computer. Scientists were free
to pursue projects that sparked their interests, even ones
their supervisors discouraged. As a result, 11 Bell Labs
scientists have shared in six Nobel prizes, including one
for proving the Big Bang theory.
But while the labs won glory, other companies marketed and
profited from its inventions. In part, this was because its
research was funded with public money -- a special tax on
phone bills -- and inventions were available to anyone for a
small fee. In any case, Bell Labs managers had little
financial incentive to pursue commercialization of new
technologies. AT&T had a lock on the phone business and was
swimming in cash.
The 1984 breakup of AT&T, followed by the 1996 spinoff of
Lucent, ushered in an era of uncertainty for the labs.
Lucent slashed funding after the technology and
telecommunications bubble burst and demand for Lucent's
products shrank. To stave off bankruptcy, it cut tens of
thousands of jobs through buyouts and layoffs and by
spinning off or selling units such as Agere, Avaya and
Optical Fiber Solutions. It eliminated entire departments
at Bell Labs, such as those working on statistics,
psychology and economics.
By 2003, Bell Labs' research budget had fallen to about $115
million, less than a third of its mid-1990s level of $350
million, current and former managers estimate. It has since
stabilized. The number of researchers fell to just over
1,000 in 2003 from 3,000 in 1999, with 500 moving with
divisions that were spun off or sold. Entire hallways on
the Labs campus are dark.
Today, the worries about the Alcatel deal loom large for
scientists, as most analysts consider the deal an
acquisition by the French company. Despite the planned CEO
role of Lucent's Ms. Russo, former Alcatel executives will
fill a majority of posts on the executive committee and run
operations in most parts of the world. The board will be
tilted in Alcatel's favor by the presence of two independent
European directors in addition to six named by each company.
Lucent says a balanced number of executives from each side
are filling top slots, and the European directors must be
mutually agreed upon. The new parent company is to be called
Alcatel Lucent and based in Paris. Bell Labs' headquarters
will remain alongside Lucent's current headquarters in
Murray Hill, N.J.
The task of keeping Bell Labs going beyond the merger has
fallen to Mr. Kim, its first leader who didn't rise through
the ranks. He isn't promising a return to the glory days.
To reshape the labs into a commercial machine -- and
preserve its relevance to a multinational corporation -- he
wants to unleash its scientists' entrepreneurial spirit.
"Within a highly competitive market, we are faced with a
reality that we have to align our vision of Bell Labs to
that of Lucent," he says. His mission is to create new
revenue streams to make up for those eroded by competitors,
especially Lucent's core business of selling telecom
equipment. Without income from its overfunded pension plan,
instead of a profit Lucent would have posted a loss so far
this fiscal year, which ends Sept. 30.
Mr. Kim says he is confident he can make Bell Labs relevant
under its new ownership, enabling "the combined company --
and its customers -- to help shape the future of
Bell Labs has tried building start-up technology businesses
before, and in 2002 it aborted one attempt. Lucent says it
sold the bulk of its interest in 27 companies for less than
$100 million and the remaining interest for an undisclosed
sum later that year. Since then, several of those start-ups
have sold for hundreds of millions of dollars.
Mr. Kim first joined Lucent in 1998 after it bought his
broadband start-up Yurie Systems Inc. for $1 billion. He
pocketed $500 million and joined Lucent's executive team.
He left in 2001 to join the engineering faculty at the
University of Maryland, where he endowed an engineering
building that bears his name. Ms. Russo hired him back in
April 2005 to try to spread his entrepreneurial success
throughout Bell Labs.
In addition to his rules on presentations and investment
returns for breakthrough technologies, Mr. Kim eliminated a
division of labor in which 40% of scientists focused on
basic research and the rest tried to turn discoveries into
technologies to sell or license. He cut costs by opening
and expanding branches in Dublin, Beijing and Bangalore,
He also served up a fair dose of corporate-speak rarely
heard before at the labs. Applying "matrix management"
principles, he pulled together scientists from disparate
departments to work together on special projects. At a
"town hall" meeting two days after taking over as president,
he announced: "We must innovate innovation." At another
meeting, he told an audience of scientists that "the future
is ours to take."
Mr. Kim, a 45-year-old who lived in South Korea until age
14, issued a "call for volunteers" to attend marathon
evening sessions devoted to reshaping the labs. He asked
scientists to put their ideas in one of two groups, like
drug makers classifying pills. One group was "vitamins" --
which have no instant benefit and are low-priced because
they're widely available. The other type was "painkillers,"
which can command a premium price because they address an
immediate need. The result of the brainstorming session:
150 ideas for technologies, including videogames, cellphone
payment methods and tiny batteries the size of an atom.
Mr. Kim passed the hottest ideas to a secretive group he
formed to lead the quest for breakthroughs, called the
Technology Commercialization, or "TC," unit. Anticipating
resistance, he nicknamed it "Totally Crazy."
Physicist Sharad Ramanathan is currently trying to figure
out how nearly blind spiders can weave roughly symmetrical
webs. "It's important to have some people who are released
from the constraints of immediate or even remote
applicability of their research," he says. "It doesn't have
to be everyone -- it just has to be some people, and that's
what makes Bell Labs special."
Ronen Rapaport, attracted by Bell Labs' pioneering work in
ultra-pure semiconductors, came on board five years ago to
study the behavior of particles called "excitons" trapped in
the material. He has since been pulled on to different
projects, including examining how deep-sea creatures filter
light. Now he devotes at least a fifth of his time to
developing future products. It's all right with him. "We
want to help the company as long as there's room for our
research," he says.
Scientists accustomed to writing academic papers sometimes
gripe that boiling their research into PowerPoint
presentations leaves no time for crucial details. But Mr.
Kim is using this format to spread the gospel about the
labs' usefulness within Lucent.
Dave Bishop, a 28-year Bell Labs veteran who heads its
government-funded-research arm, is banking on Mr. Kim's
long-term plan to prove the labs' worth. "I've worried
about this place since Day One," he says. "Jeong has
provided a structure and a focus and has made our fight his
fight to save this institution, and I say, 'God bless and
God speed.' "
Some alumni are supportive, as well. Steven Chu, who won a
Nobel in physics for his 1978-87 work at Bell Labs, says
that "working on applied things doesn't destroy a kernel of
genius -- it focuses the mind." Mr. Chu is now director of
the Lawrence Berkeley National Laboratory in Berkeley,
An example of the new approach involves metal detectors made
of silicon the width of three human hairs -- technology for
which Lucent long couldn't find a use. Under the new
regime, Bell Labs is working with a small company to develop
it into a device that could help the military detect
snipers. Called a magnetometer, the device also could be
used by doctors to measure blood flow through subtle changes
in the heart's magnetic field.
Arthur Penn Ramirez, a physicist spearheading its
development, recruited Bell Labs experts in delicately
sculpting silicon to provide interlocking combs that can
sense minute electrical charges. He summoned mechanical-
and electronic-measurement experts to turn the information
from the combs into electronic signals. And he brought in
noise-theory experts to ensure that the sensor, which works
best in the stillness of absolute zero, would be accurate
enough to work at room temperature. This means the device
could be cheap and thus could be installed in large
Six months later, a prototype came out and Mr. Kim began
showing it off to potential partners. Bell Labs' Mr. Bishop
sold the idea to a small company called mPhase Inc., which
has also invested in initial development.
Mr. Ramirez says he doesn't miss the days when there was no
pressure to turn science into dollars. Though the
magnetometer has yet to find a customer, he is excited about
it. "The project has given me an additional outlet to
pursue science," he said.
But Mr. Ramirez has also experienced the flip side of Mr.
Kim's regime. A different sensor-related project was a
leading candidate for commercial development -- only to be
rejected by Mr. Kim's selection committee this summer.
Sara Silver at