Moving on up: Alcatel acquires Newbridge

Alcatel announced last week that it will acquire the ailing Newbridge Networks for approximately $7.1 billion in an effort to break into the core ATM market. More important, the move should boost Alcatel's image in North America.

Newbridge brings a family of ATM core and access switches and 23% of the ATM WAN market, moving Alcatel into next generation network markets and putting the company in direct competition with Lucent Technologies, Nortel Networks and Cisco Systems.

"We are buying the market position. Newbridge owns 23% of the worldwide ATM market and this footprint has huge value to us," Alcatel Chairman and CEO Serge Tchuruk said.

Although Newbridge suffered financial trouble in the past year, the company is on the rebound, partially due to its new 670 switch routing platform, which scales from 50 to 450 Gb/s and already has been tested by several carriers.

"Our growth slowed in the last two years. We suffered a loss of market share in core business because we did not have product announcements in the last 18 months," said Pearse Flynn, president and chief operating officer for Newbridge. "But the new products have had a strong impact." The company restructuring, which included some layoffs, and a reduction in cost base also had an effect in third quarter revenue, which grew to $521 million, a record for the company, Flynn said.

The 670 platform was also a factor in the acquisition, said Martin De Prycker, chief technology officer for Alcatel. "We'll have a unique product to compete with Lucent, Nortel and Cisco."

Although Alcatel hopes to pose a threat to the big three with the acquisition, it faces an uphill battle, said John Armstrong, chief network analyst for Dataquest. Combined, the two companies will face corporate and geographical culture shock, he said. "Newbridge's entrenched corporate culture may clash with Alcatel's," said Anderson, noting that Terence Matthews, founder, chairman and CEO of Newbridge was not part of the new team.

Flynn will become president for the new division created by the merger, combining Newbridge with Alcatel's carrier data division to form a new carrier internetworking division, based in Kanata, Ontario.

Alcatel realizes the challenges. "The key to succeed in the integration is keeping the people and fighting the competition," said Krish Prabhu, chief operating officer for Alcatel.

And despite the deal's $7.1 billion price tag, Alcatel will get a lot for its money, Anderson said. "They are getting a real company with an existing infrastructure, experienced human resources talent and engineers," he said.

Newbridge also is putting its best face on the potential culture clash. "I've been in this industry for a long time and rarely have I seen such a good match," Matthews said.