Nortel Networks has announced plans to buy Web switching market leader Alteon WebSystems for stock valued at $US7.2 billion, a move Nortel says could help customers build networks better able to handle exploding Internet traffic.
Observers reacted positively to Nortel's plans to combine Alteon's switches, which enable Web sites to deliver content more quickly, with Nortel's optical network products and other gear. The combination of these technologies, Nortel says, will support a new generation of Internet data centres capable of delivering content more efficiently at high speeds.
"On the service provider side, it will allow the kind of integration required to combine all the pieces to create the intelligent Internet infrastructure for end-to-end quality of service," says Ron Westfall, an analyst at US-based Current Analysis. Enterprise customers won't be directly affected as much, but Nortel will now be able to supply them with Web switches, a strategic enterprise network component the vendor previously lacked, he says.
"The acquisition gives Nortel an entry in the ISP/ASP market, which traditionally has not been one of their strengths," says Greg Collins, director of Dell'Oro Group. "Nortel can now offer content-aware infrastructure components in addition to their Passport series of switches, and they are now reselling Juniper's WAN routers."
Alteon's ISP and ASP customers won't see much change in the short-term, Collins says. But down the road they should keep a wary eye because some of Nortel's acquirees get lost in the sauce. "In the long-term, they need to be concerned that what happened to Bay Networks, does not happen to Alteon," Collins says. Nortel bought Bay two years ago for between $7 billion and $9 billion in an effort to transform itself into an IP company, but little has come from the acquisition to date.
Phil Kwan, associate director of network infrastructure at US-based Incyte Genomics, says as a Nortel customer, the acquisition won't affect his buying decisions - for now. But, he says, the fact that Nortel will now incorporate Alteon's Web switches into its product line might give him good reason to look at Alteon switches six to eight months down the road.
Incyte Genomics currently uses Foundry Networks' Web switches.
Nortel has a history of buying technology companies and making their products more reliable, according to Kwan. He also thinks Nortel puts its products through many more levels of quality assurance before releasing them, while some companies prefer to push new features out fast and then send patches to users willing to sacrifice reliability for performance.
Incyte uses Gigabit Layer 2 and Layer 3 switches from Nortel that were originally from a company called Rapid City. Kwan says he always liked Rapid City's products but liked them even better after Nortel bought the startup.
"Nortel improved the reliability and robustness of the technology. So if Nortel were to buy [Alteon] out, they would probably make [Alteon's products] more mainstream," he says.
What Alteon brings to the table is a group of people focused on development of products that have traditionally been at the front of their class, he says.
While the Alteon acquisition fills a gap in Nortel's product line, it is also a response to Cisco Systems' purchase of ArrowPoint Communications earlier this year for $5.7 billion. Vendors are jockeying for position in this nascent market to become leading suppliers of equipment to service providers offering Web-hosting services and Internet data centres, among others.
Nortel plans to integrate Alteon's content-aware switching technology with Nortel's storage products, Gigabit switches, professional services, hosted application management/delivery and caching offerings. Nortel will also integrate the technology with its third-generation wireless offerings.
Upon completion of the transaction, Alteon will become a wholly owned subsidiary of Nortel.