Bay buy splits up Nortel, Avici

By Jim Duffy
Network World Fusion, 06/25/99

Nortel Network and terabit router start-up Avici Systems have ended their business relationship. This comes in response to skyrocketing market valuations for Internet start-up companies as well as Nortel's acquisition of Bay Networks, Avici says.

Nortel acquired 20% of Avici in early 1998 as a prelude to shipping a Nortel-branded version of Avici's Terabit Switch Router (TSR). In mid-1998, Nortel acquired Bay, the No. 2 router vendor behind Cisco.

Nortel will maintain its equity stake in Avici but will not distribute the TSR, says Pete Chadwick, vice president of marketing for Avici. Nortel has also given up its seat on the Avici board.

"It's most directly a result of their Bay acquisition," Chadwick says. "But from our perspective, we kind of looked out at what was going on in terms of the marketplace. Fifteen months ago it seemed that to really penetrate the carrier space you needed to align yourself with larger equipment providers. As evidenced by some of the recent public offerings, that's no longer true."

Lucent today acquired Avici competitor Nexabit Networks for $900 million. And Juniper Networks, another Avici challenger, went public this week and is valued at $1.6 billion.

"Our view was that some of the basic ground rules had changed," Chadwick says. "We felt that being closely aligned with Nortel limited our ability to work with some customers who had other people as their lead equipment vendors."

As far as the Bay acquisition, Chadwick says Nortel was distracted with integrating that company's personnel and product lines with its own.

"They had a number of architectures that they were dealing with in the marketplace," Chadwick says. "That gets very difficult to do as you progress forward."

"This just opens us up to more easily pursue our plan to remain independent and go public," he adds.

Nortel, meanwhile, says the decision to sever the marketing and distribution arrangement with Avici was mutual. Nortel recently unveiled a high-speed router for service providers - the 240G bit/sec Versalar 25000 - and has other internal developments underway that can scale the Versalar platform to hundreds of terabits, says Arun Jain, Nortel director of marketing for carrier routing products.

Nortel will unveil some of these developments within the next several weeks, Jain says.