3Com Buys its Way into Gigabit Ethernet NIC Market

The purchase of Alteon WebSystems Inc.'s Gigabit Ethernet adapter business last week by 3Com Corp. will instantly make the latter a player in the Gigabit network interface card market.

But one analyst is puzzled why the leader in NIC technology had to purchase its way into a hot network connectivity market.

3Com purchased the physical assets of Alteon's NIC business for US$110 million, and will license Alteon's NIC technology patents from Nortel Networks, which acquired Alteon for $7.8 billion last month. The deal is expected to close at year-end.

The deal would put 3Com in second place in the Gigabit Ethernet NIC market, with 3Com absorbing Alteon's 34.2% share of 1000M bit/sec NICs shipped in the second quarter, according Cahners In-Stat Group. 3Com recently introduced its own copper-based Gigabit NIC.

Alteon was the first company to offer copper-based Gigabit Ethernet adapters for servers, with the introduction of its ACEnic products a year ago.

In addition to market presence, the acquisition gives 3Com technologies to add new functionality to future products, says Tom Werner, a 3Com vice president.

"We think this acquisition lays the foundation for us to drive the transition from 10/100M bit/sec to Gigabit Ethernet" in corporate networks, he says.

Alteon's NIC technology, such as onboard Reduced Instruction Set Computing processors, will be integrated with features in 3Com's Etherlink adapters, such as encryption off-loading and management, Werner says.

Products are planned for release in the second half of 2001. The combination of the Alteon and 3Com NIC architectures could yield features such as NIC-level traffic prioritization and the encryption and transmission of packets at wire speed.

Mike Wolf, an analyst with Cahners In-Stat Group, says he is surprised by the amount of time it took 3Com to develop its own 1000Base-T NIC and that it bought its way into a leadership position in the Gigabit Ethernet NIC market.

"3Com, which is basically the top NIC company, had never done a Gigabit NIC product on their own" until recently, Wolf says, "whereas Intel had been in this market for a couple years"Alteon is a wholly-owned subsidiary of Nortel. The telecommunications giant bought Alteon for its Layer 7 Web switching technology and to keep in step with Cisco, which had purchased Layer 7 vendor ArrowPoint Communications earlier in the year.

With Alteon's Web switching technology now a focus of Nortel, divesting the NIC business was a logical step, says Ed Roseberry, director of Alteon's NIC business.

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