Alcatel has acquired US datacomms equipment vendor Xylan, plugging some but not all of the holes in its data networking strategy.
Paris based Alcatel has offered to purchase Calabasas, California based Xylan for $37 a share, valuing the cash transaction at around $2 billion. Xylan has recommended its shareholders accept the offer.
Xylan will become the hub of Alcatel's enterprise networking activity, providing IP based converged voice/data products. Both companies will also offer IP and ATM based products to their combined carrier customer base.
Analysts said the deal is good for Alcatel giving it an effective Lan equipment portfolio, but still leaves gaps in its enterprise wide and carrier offerings.
"Alcatel is a bit more of a data networking company than they were before today, but they are by no means a complete player," said Neil Rickard, research director in networking at Gartner Group.
"This is a small step for Alcatel. Xylan faces the challenge of belonging to a French company, but its better than them going solo," he said.
However, Alcatel said the deal gives them a boost in both the carrier and enterprise markets. "The combined Alcatel/Xylan product offering will surpass competition in the enterprise market, both in terms of performance and spread of functionalities," said Alcatel in a statement.
"Xylan's strong inroads in the carriers' markets, in particular, managed Lan services and the forthcoming traffic aggregation equipment, will substantially enhance solutions developed by Alcatel for service providers," it said.
Service providers Xylan is currently working with include Bell South and Bell Atlantic in the US Metronet in Canada, Telewest in the UK and Telia in Sweden.
Alcatel said it would continue to sell Xylan products through existing channels.
Alcatel's purchase of Xylan is the latest in a string of acquisitions of data networking companies by telecomm equipment companies. Nortel's acquisition of Bay Networks and Lucent's acquisition of Ascend are recent examples.
These converged companies and networking giant Cisco, are looking increasingly threatening to Alcatel, according to analysts.
"Cisco is an impending threat to Alcatel's position in the Wan core as it enters the core infrastructure market. Traditional competition from Lucent and the combined Bay/Nortel may also threaten Alcatel's position," IDC analyst Katy Hartley wrote in a recent paper.
In October 1998, Alcatel made its first foray into the IP marketplace with the purchase of high end router and gigabit Ethernet switching company Packet Engines. In June 1998 Alcatel expanded its presence in the US carrier market with the purchase of DSC Communications.
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