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Alcatel Buys Newbridge

Alcatel today announced that it would buy Newbridge Networks Corporation for $7.1 billion in stock.

Alcatel gets two things from the deal: access to Newbridge’s well-respected ATM equipment, and the chance to build a bridgehead into the lucrative US telecom equipment market.

Will it pay off? It’s too early to say, although it’s worth noting that investors weren’t encouraged by the news: Alcatel’s share price tumbled almost nine points to $43 ¾ on news of the purchase. Some observers think that Alcatel had little choice but to make a move. “This is certainly a risk, but it’s a question of take the chance or be out of the game,” says Bert Whyte, President and CEO of NET http://www.net.com/ and formerly a general manager for the access division at Newbridge. “Alcatel knows it must have a play in the US.”

The deal could spell problems for Siemens AG http://www.siemens.com, which had a long standing alliance with Newbridge.

Alcatel http://www.alcatel.com/ cited Newbridge's strength in ATM edge switches as one of the reasons why it bought the company, but some of Newbridge's ATM switches are actually made by Siemens.

In fact, Siemens and Newbridge have jointly developed and sold a range of ATM switches, so Alcatel's acqisition of Newbridge leaves Siemens in a bit of a pickle.

Siemens' range of ATM switches includes:

- two access switches, the Mainstreet 36140 and 36144 made by an Israeli company called Seabridge, which was originally jointly owned by Siemens and Newbridge but is now wholly owned by Siemens.

- an edge switch, the Mainstreet 36170 made by Newbridge.

- a core switch, the Mainstreet 36190, made by Siemens.

Right now, Siemens is denying that the Newbridge acquisition will make any difference to its ATM switch line-up, and says it will continue selling the Mainstreet 36170 even though it will now be supplied by its arch-rival, Alcatel. "It's business as usual," says Thomas Rambold, chief technology officer for Siemens' Information and Communication Networks Division. "I'm quite convinced that this is sustainable."

Rambold says Newbridge's acquisition has been a good thing, in that it's ended speculation about Newbridge's future. "It's better to have cleared up the ownership issue." He declines to comment on speculation that Alcatel, Ericsson and Siemens were all bidding to buy Newbridge, apart from pointing out that Siemens has had plenty of opportunities to buy Newbridge in the past, and has never done so.

Despite Siemens' claims the contrary, most observers think it’s unlikely that it will be able to maintain its synergy with Newbridge now that its been acquired. If things do fall part, it would represent another serious blow to Siemens’ attempts to establish itself in the US. The company has already spent $1 billion on US start-ups through its subsidiary, Unisphere Solutions Inc. (http://www.unisphere.cc) – an investment which has yet to pay off in terms of revenues.

Newbridge will be folded into Alcatel’s Carrier Data Division (CDD) to form a new group – called Carrier Internetworking Division (CID). The new division will be headquartered in Kanata, Canada. Big takeovers are usually marked by difficulties in integrating employees and products lines, although Alcatel and Newbridge may have an easier time than some. “Alcatel has a much better chance of integrating a Canadian company than a US company. Newbridge is much more European in its attitudes, and around 20 percent of its engineers are French speaking Canadians,” says NET’s Whyte.

by Peter Heywood, international editor, Light Reading http://www.lightreading.com

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