Nortel bags Alteon for $US7.8 billion

Nortel Networks last Friday announced a definitive agreement to acquire Alteon WebSystems for $US7.8 billion in stock. Alteon is the leading supplier of Web content switches, according to the California-based Dell'Oro Group.

The acquisition is 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 in order to become leading suppliers of equipment to service providers offering Web hosting services, among others.

Nortel says the acquisition will enable it to offer "next generation" Internet data centre products capable of delivering content efficiently and reliably at high-speeds. Nortel says it will integrate Alteon's content-aware switching technology with Nortel's offerings in storage, gigabit switches, professional services, hosted application management/delivery and caching.

Nortel will also integrate the technology with its optical and third-generation (3G) wireless offerings.

"In the new economy, the value and richness of content across the Internet is increasing on a massive scale," Clarence Chandran, Nortel's chief operating officer, said in a statement. "Our acquisition of Alteon WebSystems will accelerate the delivery of an Internet data centre capable of moving content seamlessly and rapidly across high-performance optical Internet and 3G wireless networks." IDC forecasts the Web switching market to grow to more than $4 billion by 2004 from $203 million in 1999. Alteon is the market-share leader in Layer 4 to 7 Web switching market with a 50 per cent share of the overall market and an 81 per cent share of the Layer 4 to 7 Gigabit Ethernet market, according to Dell'Oro. Alteon posted revenue of $51.5 million for the quarter ending June 30, an increase of 82 per cent from the previous quarter.

Alteon's customers include Yahoo!, Excite@Home, Buy.com, NTT, DLJDirect, CitySearch- Ticketmaster Online, Exodus Communications, Loudcloud and Digex.

Upon completion of the transaction, Alteon will become a wholly owned subsidiary of Nortel and headquarters will remain in San Jose. Alteon President and CEO Dominic Orr will become the president of Nortel's Content Distribution Networks business unit.

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