Nortel still showing signs of life in the enterprise

Just when you thought it was safe to write off Nortel Networks Corp. as an enterprise data networking power, the company is showing some very strong signs of life.

Rumoured to be the next major vendor to surrender the large enterprise stage to Cisco Systems Inc., Nortel this year will make some significant, LAN-switching announcements to position itself as a leader in delivering wire-speed, policy-enabled networks.

The company is also making great strides in gaining back Ethernet-switching market share and surprised Wall Street analysts with 16 per cent revenue growth in its enterprise business between the fourth quarters of 1999 and 2000.

“We’re not getting out of the enterprise, we’re not pulling a Lucent (Technologies Inc.),” said Jim Vogt, president of Nortel’s small business solutions group. “This is a two-horse race. The only two that can deliver what’s required over the next five years are Cisco and Nortel.”

In the face of Cisco’s growing dominance in enterprise data networking, Lucent spun off its enterprise data and voice operations into a separate company called Avaya last year. Cabletron split itself into four separate companies, one of which is focused on enterprise networks, while 3Com resorted to more drastic measures: it abruptly exited the large-enterprise core switch market, alienating and embittering scores of customers in the process.

Industry watchers have been waiting for Nortel to concede the market to Cisco, given the company’s dramatic loss of market share in Layer 3 switching between 1998 and 1999, and a three-quarter delay in shipping its next-generation enterprise core switch. The Bay Networks Inc./LAN switching side of Nortel’s house has been conspicuously silent since Nortel acquired Bay in 1998, leading to speculation that the company was quietly retreating from the market.

Nortel has instead been stealthily plotting an assault. It’s been coordinating operations between its premises (Bay) and core (Nortel) businesses instead of separating them, Vogt said, in an effort to build a comprehensive and cohesive, policy network strategy companywide.

And its weaponry will include a number of enhancements to its BayStack 400 series, Business Policy Switch and Business Communications Manager product lines.

This month, Nortel will add the Extensible Authentication Protocol (EAP), traffic policing and a Gigabit Interface Converter (GBIC) adapter to the Business Policy Switch (BPS). EAP will authenticate users inside a firewall in accordance with a company’s security policy. Traffic policing will admit certain flows while discarding others, and the GBIC will add Gigabit Ethernet connectivity via variable physical interfaces.

The company will unveil software that “syncs up” the BPS with Nortel’s BayStack 450 stackable 10/100/1000Mbps Ethernet switch in terms of consistent Web management, administration and enforcement, Vogt said.

In April, Nortel will roll out a lower-end, lower-cost, policy-enabled version of its BayStack 450 for users requiring a more cost-effective alternative to the 450. This new 400-series switch will save Nortel from cutting the cost and profit margin from the 450, Vogt said.

In June, Nortel will enhance the IP telephony capabilities of its Business Communication Manager (BCM), a LAN PBX that supports IP and digital handsets. Nortel will increase the number of handsets BCM can support and add wizards to its graphical user interface for configuring dialing plans.

In the second half of this year, Nortel will unveil a next-generation Layer 3 Gigabit Ethernet switch with copper ports to better compete with Cisco’s 48-port Catalyst 2948G-L3, Vogt said.

“We’ve had a little bit of pressure from the 2948G” in terms of footprint, he admitted. The 2948G is 1.5 rack units, an impressively small footprint for a Layer 3 switch.

The new Nortel switch will be available in stand-alone and stackable versions, Vogt said.

This flurry of enterprise LAN switching activity follows a surprisingly successful fourth quarter of 2000, in which Nortel led all major vendors in Ethernet switching revenue growth, according to the latest figures from Dell’Oro Group. Nortel’s 39 per cent growth was nearly double that of 3Com’s, which was second at 22 per cent.

Much of this growth, however, is due to back-ordered products that finally shipped after a long delay, according to Seamus Crehan, an analyst at Dell’Oro.

Regardless, if you couple that Ethernet switch growth with the 16 per cent fourth-quarter revenue growth in Nortel’s enterprise business overall – “far exceeding our expectation of 5 per cent,” said Wall Street investment firm UBS Warburg – you’ll find a company that appears to be far from dead in the enterprise.

“There’s no carrier or enterprise business at Nortel anymore,” said Vogt. “It’s premise-to-core. We’re shaping the company that way.”

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