RealTime IT News

Nortel Pulls Power Move on Rivals

Nortel Networks Friday countered strikes by networking rivals Cisco Systems Inc. and Lucent Technologies Inc. by grabbing content switch giant Alteon WebSystems Inc. for $7.8 billion in stock.

Alteon's shareholders will receive a fixed exchange ratio of 1.8 Nortel common shares for each share of Alteon's common stock. Based on Thursday's closing price of $78.63 per common share of Nortel Networks, the deal values Alteon at $144 a share.

The deal is expected to close in the fourth quarter.

Nortel, widely acknowledged as the No. 2 network supplier to Cisco, had sat quietly this week as Lucent Tuesday bought network switching supplier Spring Tide Networks for $1.3 billion in stock and Cisco countered with the purchase of data storage network NuSpeed Internet Systems for $450 million in stock.

Alteon's Public Relations Manager Pat Cooper told internetnews.com Friday the deal came up quickly; he also confirmed that a few networks had been looking to buy Alteon for a while.

Lucent was one of them, he said, but Cisco did not pursue Alteon because it had already acquired a leader in the switching space -- ArrowPoint Communications Inc..

In buying Alteon, the Canada-based Nortel dealt its competitors a sharp blow; the firm claims it has become the new leader in Net data centers.

The acquisition will enable Nortel Networks to build the next generation Internet data center -- capable of delivering content at unprecedented levels of speed, efficiency and reliability.

Nortel Networks will be able to offer a complete Internet data center solution by integrating Alteon's content aware switching products with Nortel's service offerings in storage, gigabit switches, professional services, hosted application management and caching.

The deal makes sense for Nortel as Alteon is regarded as the top content switch provider -- bigger in scale than Lucent's newly-acquired Spring Tide Networks and Cisco's ArrowPoint Communications, which it bought in May for about $5.7 billion in stock.

"In the new economy, the value and richness of content across the Internet is increasing on a massive scale," said Clarence Chandran, chief operating officer, Nortel. "Our acquisition of Alteon WebSystems will accelerate the delivery of an Internet data center capable of moving content seamlessly and rapidly across high-performance optical Internet and 3G wireless networks."

Analysts say content switching is set to explode. International Data Corp. expects the sector to grow to more than $4 billion by 2004 from $203 million in 1999.

Alteon's success at selling its Layer 4-7 Web switching capability points to this; the firm posted revenue of $51.5 million for the quarter ending last June -- an increase of 82 percent from the previous quarter. Based on worldwide revenue, Dell'Oro Group estimates that Alteon WebSystems holds 50 percent of the global content aware switching market in Layer 4-7 switching.

Alteon's customer base includes service provider such as Yahoo! Inc., Excite@Home Inc. and Buy.com Inc..

Alteon President and Chief Executive Officer Dominic Orr will become the president of Nortel Networks' Content Distribution Networks business unit.