From the National Post
July 29, 2000
Purchase aims to clear up Web snags
Simon Avery
Financial Post
MOUNTAIN VIEW, Calif. - Nortel Networks Corp.'s proposed purchase of Alteon
Websystems Inc. for US$7.17-billion worth of stock aims to solve the two most hated
things about surfing the Web -- crashed sites and long download times.
San Jose, Calif.-based Alteon makes software and hardware to bring speed and
intelligence to data networks. Its Web switches act as traffic cops directing information
flow down the least congested paths and its software scans data to enable intelligent
processing.
The company boasts that its latest products are capable of supporting up to 32 million
concurrent Web sessions and processing up to 12 million Web sessions every second.
Four year-old Alteon and most of its rivals in the nascent, smart internet infrastructure
market are still losing money. But demand for load balancing devices and intelligent traffic
control software is growing so fast that companies building the Internet network are
grabbing them at astronomical prices relative to earnings.
"All of a sudden there's this little wart on the wire that's suddenly turned into a significant
player, and that means Cisco and Nortel both have to own it," said Alistair Croll, a
founding partner of Networkshop Inc., a Montreal-based ebusiness infrastructure
consulting firm.
In May, Cisco agreed to buy Alteon rival ArrowPoint for US$5.7 billion in stock. Just six
weeks earlier, Arrowpoint had gone public valued at US$1 billion -- representing nearly a
six-fold gain in just six weeks.
Cisco had its own in-house technology for managing traffic, but analysts say it didn't
match the quality coming out of startup firms, so Cisco bought its way into the market.
The complexity of the technology is impacting the market in other ways too.
In many instances, customers buying equipment to speed up their Web sites find the
technology so complicated that they choose a firm like Alteon as a supplier strictly on the
merits of its customer base.
Alteon counts among its clients, Yahoo!, DLJdirect, Exodus Communications and
ExciteHome.
"Nortel is buying Alteon not just for the company but for its pedigree," Mr. Croll said.
International Data Corp. estimates the market for equipment to speed up Internet data
flow will grow to more than US$4 billion by 2004, up from US$203 million in 1999. This
growth potential is not lost on investors. When Alteon went public last September, its
share price nearly quadrupled to US$140 in the first day of trading. Despite its lofty
valuation, all eight analysts following Alteon still had buy recommendations on the stock
prior to Nortel's bid yesterday.
Alteon's president and chief executive, Dominic Orr, will join Nortel to run a new content
network business unit as part of the deal.
Mr. Orr joined Alteon in November 1996 and could have found himself working at Nortel
much earlier if he'd stayed with his previous employer, Bay Networks, a network equipment
maker that Nortel acquired in 1998.
Alteon has about 500 employees. For the fiscal year ended June 30, net sales totalled
US$109.6 million, up from US$26.3 million a year earlier. Net losses fell 23% to US$9.7
million.
savery@nationalpost.com |
