Alcatel Allies with CacheFlow

This is the latest in a series of aggressive moves in what may be a campaign to dominate the worldwide broadband equipment market.

by Alex Goldman ISP-Planet Associate Editor [February 25, 2000]

Update: Lucent, Alcatel Finalize Merger

Yesterday, Alcatel, a French equipment maker, announced a marketing and technology alliance with CacheFlow. Brian NeSmith, President and CEO of CacheFlow, says the companies are natural partners. "Our caching appliances are a natural extension to Alcatel's next generation Internet solutions. This partnership creates a single-source for service providers looking to build high-performing, scalable next generation networks."

In late 1999, Forbes reported, in an article called "Alcatel Needs More Than RBOCs," that Alcatel had an overwhelming advantage in the DSL market. But that lead was threatened by its narrow market: It had sold ADSL to RBOCs, but had not succeeded in selling to CLECs.

However, Alcatel had already embarked on a series of aggressive acquisitions and alliances that would secure its dominance:

• In 1998 it had purchased Xylan, Packet Engines, and Assured Access.
• It also purchased DSC Communications.
• In teamed up with Ascend communications, which was acquired by Lucent in June, 1999. Ascend manufactures the MAX TNT switch and other important Internet-related equipment.
• On January 20, 2000, Alcatel set up a VC fund in Silicon Valley, run by the founder of Xylan, with "an eventual target fund of $150 million." The fund is called Alcatel Ventures Fund I Limited Partnership.
• It acquired Genesys on January 24, 2000, in a stock swap worth about $1.5 billion in Alcatel ADR shares.
• On January 26, 2000, it created a wholly owned subsidiary called HomeTop Solutions that develops software for multiterminal multinetwork portals.
• On February 23, 2000, Alcatel purchased Newbridge Networks in stock swap of about $7.1 billion worth of Alcatel ADR shares. Newbridge, a large Canadian provider of broadband equipment, noted in its annual report for 1999 (available here) the possibility of sales fluctuations that could make quarterly results difficult to predict, even towards the end of a fiscal quarter. Uncertainty could be caused by "unforseen delays in product deliveries or closing large sales, introductions of new products by the Company or its competitors, seasonal patterns of customer capital expenditures or other conditions affecting the networking industry in particular or the economy in general."
• The next day, February 24, 2000, Alcatel announed an alliance with CacheFlow. CacheFlow is one of the older caching equipment makers. It owns a proprietary operating system, CacheOS™, and claims that its caching appliances are particularly well-suited to broadband demands.

These are aggressive moves, and may be a reaction to the massive shock Alcatel received last year. After Alcatel missed its 1998 profit targets it announced that it would slash 12,000 jobs. The stock plunged about one-third in one day. Alcatel had already sold most of its peripheral assets. In 1998:

• GECELEC was sold to GEC Alsthom (shortly afterwards, Alcatel Alsthom changed its name to Alcatel).
• A stake in Framatome, a French consortium that manufactures nuclear reactors, was sold to the French government in exchange for shares in Thomson-CSF (which manufactures diverse high tech electronics including IP network equipment).
• Alcatel sold Alcatel Postal Automation Business (APAB) to Mannesmann. APAB was the French APAS SA entity combined with a division of Alcatel Bell in Belgium.

Thus, Alcatel has focused on its core competency, although it still retains peripheral businesses, such as a space department neatly hidden in the Alcatel org chart in the Internet & Optics department. It rules ADSL, currently the most popular residential broadband technology. Perhaps the only challenge Alcatel's DSL sales might face is from alternative DSL technologies, such as Copper Mountain's SDSL technology.

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