Alcatel joins the new generation networking crowd

2000-02-23

Was anybody wondering about a slow-down in the consolidation of networking equipment vendors? If so, such thoughts may be premature, as demonstrated by Alcatel’s $7.1 billion acquisition of Newbridge Networks yesterday. The move adds a much-needed component to the Alcatel portfolio, namely presence in the Internetworking market. Not that Alcatel lacked products in this space, however it has lacked – how should I say – IP mindshare.

All this looks set to change with the acquisition which will enable Alcatel to go up against the giants of “new generation networks”, namely Lucent, Nortel Networks and Cisco. Alcatel is a company that has grown dramatically through acquisition. When it was first privatised, it concentrated on growing its multinational presence by the purchase of, and partnership with, European and US vendors such as SEL in Germany, Telettra in Italy and Sprint in the US. More recently it has set its sights more closely on mobile and data networking companies, such as Xylan and, of course, Newbridge. Newbridge has been hoping to be bought for some time. Despite successes a few years ago, its more recent past has not been so healthy. Speculation started in November last year, with include Ericsson and Nortel. Apparently these companies walked away from the table over the past few weeks leaving only Alcatel, who have accepted the mantle with confidence. Unfortunately the shareholders are not so sure – Alcatel’s share price has dropped four percent to 227.9 euros following the announcement. This is unlikely to perturb the company, which is no stranger to market volatility – following a profit warning in October 1998, the share price dropped 40% to a low of 68 euros.

Alcatel should not be underestimated as a communications equipment provider. Its greatest strength lies in the breadth of the products and services it offers: for example, in 1999 it carried 35% of the worldwide ADSL market – a share that increases to 52% in North America. Alcatel has major stakes in wireless and satellite communications, not to mention terrestrial and submarine cabling. All of this puts the company in an ideal position to appreciate the nature of convergence – data availability any time, anywhere and across any medium. The company has been maligned as an old-fashioned, “traditional European” company which is slow to change and slower to innovate. If this was ever true then it most certainly is not now – over the past few years the company has refocused, restructured and risen to the challenges that are faced across the networking industry. Europe has reinvented itself over the past three years as a hub of communications innovation and development, with companies like Nokia and Vodafone leading the way. Other technology companies based in Europe, such as Alcatel, are now able to bask in the glow that has been created.

Alcatel is placed to provide end-to-end solutions in ways that few other companies can approach. The company provides mobile phones, ADSL cards, set-top box chipsets at the client side, plus access systems for all of these devices and more, plus the underlying global connectivity. Perhaps Lucent can come closest to this soup-to-nuts vision, but even if this is the case, Alcatel remains one to watch.

(First published 23 February 2000)