Nortel has quietly terminated its distribution and technology agreement with terabit routing firm Avici, leaving the telecoms equipment giant without a product in the increasingly crucial market of carrier networking.
Nortel had signed an OEM deal with Avici for its multiterabit switch router line in April 1998, when it also acquired a 22.6 per cent stake in the firm.
But the deal was dropped last month so that Nortel could concentrate on adding terabit routing capabilities to the gigabit switches it inherited with its purchase of Bay Networks, which was made two months after the Avici agreement. A spokesperson said Nortel would retain its stake in Avici.
He continued: "Bay has some great routing technology and we will be relying on that. We brought out the Versalar 25000 switch router in June, which will be developed to terabit routing scale." He added that several new home grown products would be announced over the next few months to take the firm into the terabit routing arena.
Terabit routing has become the latest battleground for carrier equipment vendors spurred on by growing demand for high speed Internet applications. Last week, Lucent gained a huge head start over its rivals by announcing its intentions to acquire Avici rival and startup, Nexabit, for $900 million.
But analysts believe that Nortel's split with Avici leaves it with a big gap. Paul Strauss, senior analyst at IDC said: "Nearly all the big telecommunications equipment providers do not have terabit solutions, and neither does Cisco, but to go from having a terabit product to not having one is embarassing."
He believes the two split because Avici wanted Nortel to invest more in it. And according to an IDC bulletin, Nortel had offered to acquire the shares in Avici that it did not own for an unknown sum. The bid was rejected as too low, however, in light of Nexabit's $900 million valuation, and the $5 billion stock valuation of another terabit router specialist, Juniper Networks, during its first day of trading.
Both the Nortel spokesperson, and Pete Chadwick, Avici's director of marketing, declined to comment on IDC's assessment.
But Chadwick said the company's relationship with Nortel had been a "mixed blessing", and that now it was free to partner with new suppliers. "We need to integrate with a wide range of optical equipment vendors and it is better for us to charter an independent course," he claimed.
IDC's Strauss believes Nortel is still keen to acquire a terabit routing specialist, however, and rumours are currently circulating about a deal with another firm, Pluris.
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