After months of speculation, Alcatel has finally bought troubled networking vendor Newbridge for $7.1bn (£4.4bn).
The deal is the latest in a long line of industry acquisitions and mergers, as different companies scramble to create end-to-end bigger networking companies.
Newbridge had been widely touted as a 'frog waiting for a prince' because it has a good range of products and yet is too small to compete with the likes of Nortel Networks and Lucent.
In November 1999, Newbridge announced a profit warning and the company's president and several senior executives resigned.
In the aftermath, Newbridge restructured with some success, and on Wednesday was able to record an operating profit of some $521 million for its third fiscal quarter - an eight per cent increase on the previous quarter.
French telecoms equipment supplier Alcatel was among several potential buyers including Ericsson and Siemens.
Alcatel was a prime candidate to buy Newbridge because it wanted to break into the US market and a big purchase such as Newbridge would give it the foothold it needed.
"We are making a major move to become a worldwide leader in new-generation networks," said Serge Tchuruk, Alcatel's chairman and chief executive. "The acquisition of Newbridge combines our position in fast internet access with Newbridge's strong ATM multi-service capabilities."
Alcatel had already bought three other US companies - Xylan, Packet Engines and Genesys - and created the Alcatel OmniPCX 4400 range that replaced voice-only exchange systems and allowed data and voice over the same network.
As Alcatel's latest acquisition, Newbridge will be merged the company into Alcatel's data carrier division.
A match made in heaven?
Newbridge was expecting to sell more than $1bn worth of networking equipment this year - now the combined company expects to sell $2.5bn worth of kit. The two companies also have a complementary customer base and strong product links, particularly in radio access networks.
"The merger allows us to accelerate our growth in the explosive broadband networking market," said Newbridge president Pearse Flynn.
However, the deal made Wall Street nervous. Alcatel's shares slid $4 (or 8.4 per cent) and Newbridge's fell by $1.88 (or 5.5 per cent).
Steve Byars, principle analyst at Current Analysis, said Alcatel is still a long way from being a major player in the market even with Newbridge on board.
"This is not the masterstroke that will put Alcatel into the top three," he said. "The footprint Newbridge has in international markets does add value, but it does not have a strong market presence in the US, so Alcatel is not closer to dislodging Lucent or Nortel."
Pim Bilderbeek, vice president of networking research at analyst IDC, said the merger means that there will be stiff competition for Nortel and Lucent.
"Newbridge was too small to take on the big players and too large to be a bit player. If you want to sell kit to ISPs you need to be a lot bigger," he said.
Newbridge provides Alcatel with the ATM expertise that, alongside its own DSL technology, gives it the perfect package to sell to ISPs.
"If you believe the technical press ATM use is dying. But ISPs are actually buying ATM at the moment - and they are putting IP over it. This means that Newbridge had the sort of kit that Alcatel needed," said Bilderbeek.
"However, the increased competition will see a reduction of prices. In fact, we are already seeing this with reductions caused by discounting Wan switching."
Bilderbeek believes that most Newbridge users will not notice the change of ownership, because Alcatel has very few technological items that it will demand Newbridge will scrap.
"Newbridge was trying to develop a DSL product and because Alcatel has an extremely strong DSL line I can't see it wanting to keep that," he said. "I also think there will be tighter integration between Alcatel and Newbridge products particularly in the terabit IP router area."
Bilderbeek is concerned for users who may have bought their kit from Siemens.
"Siemens was selling more than 10 per cent of Newbridge's kit as an original equipment manufacturer, and I can't see it wanting to do that now that it is owned by one of its main competitors," he said.
Rob Main, Pembrokeshire County Council's computer communications manager, has his fingers crossed about the merger. His council has been buying Newbridge kit for the last five years and two months ago invested in Tigress Internet kit from Newbridge as it planned to become an ISP.
"We have had an excellent service from Newbridge and we hope and expect that it will continue under Alcatel," said Main.
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