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Nortel's Alteon play gets mixed results

A year after purchasing Alteon WebSystems, Nortel needs to refocus on enterprise customers.

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When Nortel bought Alteon WebSystems a year ago, the company made a $7.8 billion bet that service providers would continue to gobble new equipment and technologies such as Web switching. Now that carrier spending has dried up and the economy has gotten sour, analysts say Nortel may look to peddle its Web switching wares more to enterprise customers.

Observers say the purchase was a positive step because it added Web switching - a "next big thing" technology - to Nortel's product portfolio. The move was also an attempt to keep pace with rival Cisco, which purchased Web switch maker ArrowPoint Communications for $5.7 billion two months before the Nortel/Alteon deal.

Overall, the Alteon purchase got Nortel close to where it wanted to be - the top of the Layer 4 to 7 switch market. Cisco was the market leader last year, with 45.9% of the $251 million worldwide Layer 4 to 7 switch market, with Alteon coming in second at 20.6%, according to market research firm IDC.

But with the negative turn in the service provider market, both companies may have to get creative to make their Web switch bets pay off, says Joel Conover, senior analyst with Current Analysis.

"Nortel paid a lot of money for [Alteon], and it's probably going to take more time than they expected to pay off that investment," he says.

Conover adds that enterprise users were not first and foremost on Nortel's mind when it bought Alteon, which is why the deal hasn't been that significant for many Nortel enterprise customers.

One such shop is Domino's Pizza. While Domino's uses Accelar (now PassPort) and BayStack switches to provide Gigabit Ethernet and quality of service in its LAN, Layer 4 to 7 switching technology has not yet figured into the firm's LAN or WAN plans, says Matt Maguire, director of IT for the Ann Arbor, Mich., company.

Conover anticipates this type of mentality will change among enterprise users as Nortel shifts its focus from a market that's stagnant to one that's growing moderately.

"Demand from the enterprise side is growing, while service provider demand is kind of steady. That's why a lot of companies are turning an eye toward the enterprise," Conover adds.

The Alteon acquisition has also had little impact on Alteon user VeriSign, which uses the vendor's ACEDirector switches to load balance its 128 Web servers. The digital certificate authority has had no problems with Nortel, other than a few instances of getting the runaround while looking for phone support from Nortel/Alteon, says Anand Valmiki, network manager for the company's Web site. Valmiki adds that while his company is now technically a Nortel customer, he will stick mostly with the Alteon products, because most of the firm's internal network runs on Cisco equipment.

Putting the pieces together

During the past year, Nortel has rolled the Alteon technology into its Personal Internet product line, which includes content delivery network equipment such as Web switches, caches and Secure Sockets Layer acceleration gear. These products are a mix of original Alteon boxes, such as the ACEDirector and ACESwitch load balancing and applications switches, and products from Novell caching spinoff Volera.

The most significant integration of Alteon/Nortel equipment came with the Alteon 780 series, which was based on Nortel's PassPort 8600 Layer 3 switch for large companies and service providers. The switch combines the PassPort's 10-slot chassis and multigigabit backplane and Web switching technology from Alteon to form a behemoth Web switch aimed at customers such as application service providers and large enterprise data centers. Nortel beat Cisco to the punch in putting Layer 4 to 7 switching into its top backbone switch, as Cisco's Web switching module for the Catalyst 6500 came out three months after the Alteon 780 was announced.

"I think Nortel has done a good job integrating Alteon technology across their product offerings," Current Analysis' Conover says. "That's their whole CDN play. However, I think they have slowed down a bit since those products were introduced." Conover attributes this to a market slowdown, but adds that he expects to see more Alteon/Nortel technology integration for enterprise products down the road.

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