3Com is buying Alteon WebSystems' Gigabit Ethernet adapter business for $110 million in cash, 3Com announced Wednesday. The deal is expected to close at the end of December, 3Com and Alteon executives say.
The deal would instantly put 3Com in second place in the copper-based Gigabit Ethernet NIC market, as 3Com would absorb Alteon's 34.7% share of 1000Base-T NIC shipments in the second quarter of this year, according to Cahners In-Stat Group. 3Com just started shipping its first 1000Base-T NIC this month and has no measurable presence in the market. Intel holds the market lead, with 46.5% of 1000Base-T shipments in the second quarter of this year, Cahners In-Stat reports.
Alteon was the first company to offer fiber- and copper-based Gigabit Ethernet adapters for servers, with the introduction of its ACEnic products two years ago.
In addition to market presence, the acquisition gives 3Com new technologies that it can use to add new functionality to future products, says Tom Werner, vice president of 3Com's network connectivity division.
"We think this acquisition lays the foundation for us to drive the transition from 10/100 to Gigabit Ethernet," in enterprise networks, Werner says. "But it also allows us to add value rapidly to new products."
Alteon's NIC technology, such as onboard reduced instruction set chip (RISC) processors, will be integrated with features in 3Com's Etherlink adapters, such as encryption offloading 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.
Alteon WebSystems is a wholly-owned subsidiary of Nortel Networks. The telecommunications giant bought Alteon last month for $7.8 billion, primarily for its Layer 7 Web switching technology and to keep in step with Cisco following Cisco's recent buyout of Layer 7 vendor ArrowPoint. With Web switching now the main focus of Alteon/Nortel, divesting the NIC business was a logical step, says Ed Roseberry, director of Alteon's NIC business. As part of the deal, no employees will transfer between Alteon/Nortel and 3Com, he adds.
According to market research firm IDC, the installed base for Gigabit Ethernet NICs will jump from just under 800,000 this year to 11.3 million by 2004. Over the same time period, IDC predicts that the average sale price of Gigabit Ethernet NICs will drop by 60% from $460 per adapter this year to $180 in 2004. Copper-based gigabit NICs will help accelerate the adoption of Gigabit Ethernet and drive down prices, IDC says.
The acquisition comes just a few weeks after 3Com made its largest enterprise product release with the announcement of 12 new enterprise network products, including a 1000Base-T Etherlink NIC, the SuperStack 3 switch line, new Web-based network appliances and Bluetooth wireless LAN products, as well its own 1000Base-T NIC.
While 3Com may have exited the high-end switch market with the cessation of its chassis-based LAN and WAN offerings earlier this year, the company continues to compete in other enterprise equipment markets, such as NICs, stackable switches and wireless, and with its NBX IP telephony product.
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