The acquisition spree of telecoms equipment vendor Nortel Networks continued last week with the purchase of internet services company Sonoma for $540m (£372m).
Sonoma's speciality is the delivery of high-speed local internet access and related services.
The company offers what analyst company Gartner has described as a "branch office in a box", and the popular view is that the acquisition will allow Nortel's carrier customers to expand their offer to smaller companies. In particular, this will mean cost-effective and efficient data, voice and video connections over a single line.
Steve Schilling, president of Nortel's access networks division, said he sees a good fit between Sonoma's and Nortel's optical, digital subscriber line and ATM services, saying the pairing "will dramatically change the cost of a voice call".
Nortel has already started work on integrating its high-speed network access platform with Sonoma's voice and data access devices following a deal struck in May, said Schilling. This head start may help Nortel overcome the problems that come with trying to integrate two different product lines.
Analysts are calling the buyout good news for Sonoma, since the Nortel brand name will help give its products much needed credibility in the medium-sized enterprise sector, where until now it has just been a small fish in a big pond. It also breaks Nortel into a new market.
Clive Longbottom, of analyst Strategy Partners, believes Nortel has every chance of creating a credible offer for small and medium-sized enterprises (SMEs).
"When it [Nortel] bought Bay Networks, everybody expected it to throw the SME stuff out, but it didn't. It's a hell of a market to go for, and one where it does not have any baggage to worry about. Buying Sonoma makes sense to me," he said.
The Sonoma purchase is just one of many acquisitive moves by Nortel as it breaks out from the ghetto of voice equipment manufacture.
In July, the company struck an $8bn deal for internet switch maker Alteon WebSystems and in June it made a move on the fashionable application service provider space by buying software company Epicon for $275m.
"All these acquisitions are for peanuts by Nortel's standards, but it is getting great technology in return. So far it's making a fairly good job of absorbing these companies," said Longbottom.
Growth by acquisition is certainly helping Nortel's figures. In July, the company reported second quarter earnings up by 64 per cent on the corresponding period a year ago, exceeding analyst expectations. Net earnings for the period were $561m on revenue of $7.82bn.
Nortel's success is in stark contrast to the poor year being experienced by rival vendor Lucent Technologies. The company has gone through a series of painful corporate restructurings, during which time it has lost several high-profile executives.
Far from acquiring, it has been offloading non-core activities and regrouping round key markets such as high-speed internet access and wireless equipment. An earnings shortfall earlier this year, the halving of its stock price and warnings of weaker profits ahead have not yet convinced Wall Street that it has turned the corner.
"Lucent and Nortel are the only two companies with the chance to put the brakes on Cisco, and Lucent in particular has disappointed," said Longbottom. "Both have been too much in competition with each other to make much of an impact."
Nortel, at least, appears to have a significant edge on its rival for the time being.
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