Nortel Pays Big Bucks for Big Web Switch Maker

FRAMINGHAM (08/04/2000) - Demonstrating the high-stakes nature of gaining a presence in the high-end content and application Web switching market, Nortel Networks Corp. has announced an agreement to purchase Alteon WebSystems Inc. for US$7.8 billion in Nortel common stock.

Alteon's Web switches, which range in price from $10,000 to $40,000, compete with similar products from San Jose-based Cisco Systems Inc.

Cisco acquired its line of Web switches with the purchase in June of Acton, Mass.-based ArrowPoint Communications Inc. for $5.7 billion.

Web switches decrease delays in Web site response (latency) by distributing user requests for information - a video clip, for example - over several servers that host the same content. The devices also increase infrastructure reliability by detecting server failures and directing traffic to backup servers at the same site or to other servers at geographically dispersed data centers.

According to Ron Westfall, an analyst at Current Analysis Inc. in Sterling, Va., Web switches read data packets to determine the type of content requested and then "snap traffic to the right server on the fly."

Westfall said growth among Internet content-hosting companies and application service providers (ASP) will be a major driver for the Web switch business over the next three years. His firm projects that the ASP market will grow from $2 billion this year to $15 billion by 2003.

Analyst Jim Slaby at Giga Information Group Inc. in Cambridge, Mass., said it's been well known for a couple of years that San Jose-based Alteon was available for acquisition. The $7.8 billion that Brampton, Ontario-based Nortel agreed to pay for the company most likely would have been considerably less, Slaby said, had Nortel made its move six months earlier. Nortel announced the agreement with Alteon on July 28.

In a separate development this week, Nortel officials said the company had signed a $300 million contract with ClearData Communications Inc. in Phoenix for data center equipment and systems integration services.

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