Nortel buys DSL developer
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January 6, 2000: 2:33 p.m. ET
Pays $778M for Promatory, maker of high-speed Internet access gear
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NEW YORK (CNNfn) - Telecommunications equipment maker Nortel Networks Corp. agreed Thursday to buy Promatory Communications Inc., a developer of platforms for high-speed Internet access, for $778 million in stock.
"It’s an excellent move for Nortel,” said Jim Parmalee, a telecom equipment analyst at J.P. Morgan, who has a "strong buy” on the stock and a $100 price target over the next 6 to 9 months. "They had a product hole at the high end of the market and this fills that somewhat.”
As part of the deal, which is expected to close during the first quarter of this year, Nortel will pay $705 million in stock and another $73 million if the company meets certain performance targets. Nortel said the deal is likely to boost earnings in 2000.
But Wall Street reacted coolly. Shares of Nortel (NT) were down 2-1/16 to 87-13/16 Thursday afternoon, slumping along with others in the telecom equipment sector.
Promatory, a privately held Fremont, Calif., company started with venture capital money in 1996, provides a platform for Digital Subscriber Line, or DSL, service. DSL enables ordinary copper phone wires to carry Internet traffic at speeds up to eight megabits per second -- or 150 times faster than conventional analog modems.
Nortel continues shopping spree
Like its top rivals Cisco Systems (CSCO) and Lucent Technologies (LU), Toronto-based Nortel has been on a buyout binge in recent months to bulk up its networks and products.
Nortel (NT) said the deal, coming weeks after it agreed to buy optical networking company Qtera, will give it a lead in providing DSL service. DSL is a leading way that regional Bells and other telephone service providers will offer high-speed Net access.
Nortel had a prior relationship with Promatory, selling its platform to telephone service providers. DSL, as with the competing cable standard for high-speed Internet access, is still in its early stages.
"Time to market is crucial,” said Parmalee. "Providing next-generation services now is what service providers are calling (for).” In the fourth quarter of 1999, he estimated, there were 1.6 million cable modem subscribers and about 600,000 DSL subscribers across the United States.
"DSL is closing the gap,” Parmalee added. The number of high-speed Internet access subscribers is expected to balloon to more than 10 million within three years, he estimated.
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Nortel Networks Corp.
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