Alcatel and Newbridge enjoy a happy merger

The clear sentiment surrounding Alcatel SA’s US$7.1 billion purchase of Newbridge Networks Inc. is one of mutual delight.

“I’ve been in this industry a long time, and I’ve rarely seen such a good fit in my career, as what this represents. I think this will be an incredible winner world-wide,” said Terry Matthews, chairman and CEO of Newbridge, in a press conference.

“This is right, and I’m very pleased to be part of it.”

Matthews told the press conference that the deal brings several benefits to Newbridge, chiefly Alcatel’s “deep pockets.”

Steve Byars, principal analyst of carrier infrastructure at Current Analysis in Sterling, Va., agreed that Newbridge needed Alcatel’s backing to grow.

“They (Newbridge) weren’t about to go out of business or anything like that…they were not in danger. But in order to grow and enlarge their product base and move into new markets, they really needed a partner with deep pockets like Alcatel,” Byars said.

“Alcatel absolutely needed technology in the core ATM and IP network.”

Patrick Liot, president of Alcatel’s Internetworking division in Calabasas, Calif., said Newbridge’s 23 per cent market share in the ATM market globally is the main point of the acquisition, from Alcatel’s perspective. He said his company is acquiring an excellent data networking team for the carrier service provider market, while “Newbridge can leverage the Alcatel global presence, being able to share resources in terms of sales, marketing, and support on a world-wide basis.”

Furthermore, Liot said Newbridge needs Alcatel’s extensive DSL offerings to be able to provide customers with more integrated solutions. In fact, Byars said DSL could be crucial in Alcatel’s attempt to take on its new heavyweight competitors such as Nortel Networks and Lucent Technologies Inc.

“They need to mount an attack on voice-data convergence. A big piece of Nortel and Lucent’s business is in voice switching,” Byars explained.

“Alcatel is in a great position there because they have the number one market share in North America for DSLAMs, but right now that DSLAM technology is strictly limited to what’s known as ADSL, and that’s not where we see the DSL market going in terms of being able to offer integrated voice and data services to small and medium businesses. But SDSL with integrated voice and data, that’s going to be a huge play. Alcatel and Newbridge really need to formulate a strategy to go after that market,” Byars said.

Liot said the acquisition is the culmination of a string of acquisitions of other companies, such as Xylan, all designed to build a new Carrier Internetworking Division, which will be housed in Ottawa.

But Byars expressed concern that Alcatel hasn’t laid out a clear strategic path of what they plan to do with the new division.

“The biggest problem for Alcatel is they haven’t articulated their vision of where they want to take networking; an overall cohesive strategy as to why they’re doing what they’re doing and how the different acquisitions fit into the bigger picture,” Byars contended.

“Our formal stance on this is neutral. We’re happy to see that Alcatel isn’t just sitting on their hands. They’re being proactive, they’re moving forward aggressively, so I think this is a step in the right direction. Our concern would be that their track record doesn’t indicate that they really pull these acquisitions together in any kind of cohesive fashion.”

Still, Byars said he is happy to see the division being housed in North America.

“We were afraid they’d put it in Paris,” he said.

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