Nortel is getting out of the market for blade switches. The Toronto-based telecom giant is selling the assets of its Blade Server Switch Business Unit (BSSBU) to Garnett & Helfrich Capital. Nortel plans to keep a minority interest in the newly formed Blade Network Technologies.

Equity firm Garnett & Helfrich said Blade Network Technologies will be based in Santa Clara, Calif., and headed by president and CEO Vikram Mehta who had led Nortel's blade server switch business from its inception in 2001. Terms of the deal were not disclosed.

"From our standpoint we're in the business of doing venture buyouts with dramatic growth opportunity, and this is the prototype of what we were seeking," David Helfrich managing director of Garnett & Helfrich told internetnews.com.

"We see this as a business better served as a standalone business that could realize dramatic growth with defensible technology, generous funding and a hundred percent focus on a target market." .

Blade Network Technologies assumes management of Nortel's BSSBU operations, including design, manufacturing and support of existing BSSBU blade server switches.

In addition, certain products supplied by Blade Network Technologies will carry the Nortel brand or the "Solutions by Nortel" brand. Nortel also had a blade research center in Canada, which will become an R&D center for Blade Network as part of the deal.

Blade Network continues the relationships established by Nortel as a supplier of switches to the top two leading blade suppliers IBM and HP. Cisco is the main competitor Blade Networks faces in the switching area.

"We think we have an inherent advantage being a company focused one hundred percent on the blade server market without the inherent conflicts and restrictions others have," said Mehta.

Blade Networks hits the ground running as a new company. Nortel's blade server switches are installed and used by Fortune 500 companies across 25 different industry segments.

The new company will be one of the largest suppliers of blade server switches with an installed base it said includes 52,000 switches (representing approximately 1.1 million Gigabit Ethernet ports) around the world.

According to IDC research, blade server shipments will grow at a compound annual growth rate of 57 percent through 2009 to reach $10 billion, making blade servers the fastest growing segment within the server industry.

This is the third big venture buyout deal for Garnett & Helfrich Capital following Wyse Technology (thin-client computing) and Ingres (open source enterprise database company spun out from Computer Associates).

David Helfrich, managing director of Garnett & Helfrich Capital, becomes chairman of Blade Network Technologies' board of directors. Eric Schoch, vice president of business development, Nortel, is now also a board member at Blade.