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Filed by Alteon WebSystems, Inc.
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934
Subject Company: Alteon WebSystems, Inc. -- Commission File No: 000-27247
Information Distributed by Alteon WebSystems, Inc. to Its Employees, Investors
and Others Regarding Alteon's Business and the Expected Merger with Nortel
Networks Corporation
August 17, 2000
Data Center Networks
Bulletin
Intelligent Content Networking: Alteon
WebSystems Profile
Analyst: Lucinda S. Borovick
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IDC Opinion
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How is Alteon WebSystems positioned to meet the requirements in Intelligent
Content Networking?
Alteon WebSystems is a leading provider of intelligent content switches. Alteon
has a broad product line and a strong installed base. The company has
successfully captured lead users in the service provider, web hoster, ASP and
ecommerce customer segments.
Alteon's key challenge are in its ability to provide high touch sales and
service to a range of global service provider clients and prospects. Pending
the acquisition, Nortel's financial strength, large direct sales force, and
ability to provide a broad solution to its service provider customers should be
an immediate benefit to Alteon.
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Company Overview
Alteon WebSystems, Inc. headquartered in San Jose, California was founded in May
1996. The company is considered to be one of the pioneers of content-
intelligent ethernet "Web switching" having first shipped these products in
February 1997. Its Web switch business is focused on developing
content-intelligent switching capabilities and
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marketing Layer 4 through Layer 7 Web switch products. (Note: Alteon also
manufactures and markets server adapters.) Alteon's stated mission is to
dominate the market for content-intelligent Web switching and position itself to
provide Web switches that offer unprecedented intelligence, performance, and
scalability for fast-growing e-businesses, hosters, ASPs and ISPs.
The following is an overview of the company's current senior management team:
. Dominic Orr, President & CEO
. Selina Lo, V.P., Product Marketing & Management
. Jim Burke, CFO
. Shirish Sathaye, V.P., Technology
. Prahbat Mishra, V.P. of Engineering
. Atul Bhatnagar, V.P. of Advanced Products
. Tony Narducci, V.P. of Worldwide Sales
. Joe Booker, V.P. of Operations
. Steve Wood, V.P., Asia Pacific Region
. Rob Mustarde, V.P. of EMEA
Alteon's three original founders, John Hayes, Wayne Hathaway and Ted Schroeder
continue to be actively involved in the company's business as part of Alteon's
technical engineering team. Prior to founding Alteon, the three founders worked
together at Ultra Networks. Selina Lo was brought into the organization in
early 1997.
Alteon is a public company traded on NASDAQ under the symbol "ATON." Alteon's
initial public offering (IPO), commenced on September 24, 1999, generated
approximately $76 million. On January 31, 2000, the company completed a follow-
on public offering of five million shares of common stock. The company reports
that funds from its IPO and additional public offering will be used for working
capital and general corporate purposes.
The company reported net sales for FY00 (ending June 30, 2000) were $109 million
, which represents a 314% increase over FY99 net sales of $26.3 million. The
company achieved operating profitability in 4Q00. The company ended 4Q00 with
sales of $51 million, which is a 545% increase over Q499 results of 7.9 million.
The company currently derives approximately 65% of its revenues from domestic
business with the remaining 35% coming from international sales. Going forward
one of Alteon's goals is to achieve 50% of its sales equally from domestic and
international business respectively.
Alteon's goal is to become the top vendor in Intelligent Content Networking.
The company line of Intelligent Content Switches and
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Appliances will be the building blocks to deliver content quickly and
dynamically. To further this goal Alteon announced the acquisition of Pharsalia
on July 20, 2000, a content delivery software start-up.
The following are the companies target markets;
. Service providers, as Alteon provides the front-end to large server farms.
Alteon increases the scale and performance of Web servers in the network.
. More recently, Alteon is targeting the emerging ASP companies to increase web
traffic response time.
. Ecommerce and econtent sites, use Alteon's products to enhance the
reliability and performance of the Web server data center.
. Internet Content Delivery Networks, who provide specialized value-added
traffic management, content, and security services such as Akamai, Digital
Island, Check Point, and Inktomi.
IDC believes that Alteon will be challenged going forward to grow its corporate
infrastructure to keep-up with the fast-pace of its Web switch sales and the
demands of its growing global customer base. The company currently has
approximately 450 employees worldwide and it is expected that it will double the
size of its organization in the next year.
Alteon has already established a sizeable customer base for its Web switch
products. The company reports a worldwide installed base of more than 1,600
customers to date. As of May 2000 the company has shipped in excess of 10,000
Web switches worldwide. These figures establish Alteon as a leader in
Intelligent Content Switching.
Nortel Networks Acquisition
On July 28, 2000 Nortel Networks announced an agreement to purchase Alteon
WebSystems for an estimated $7.8 billion in Nortel common stock. Nortel plans
to have Alteon run as an independent business unit (like Shasta) reporting to
Nortel COO Clarence Chandran in the Service Provider group. Dominic Orr,
president and chief executive of Alteon, will become president of Nortel's
Content Distribution Network business unit after the deal is completed.
Strategic Direction
Alteon aims to become the top vendor in Intelligent Content Networking. Alteon
primarily targets its Web switch products at Service Providers and Web Hosters
who use Alteon's products to front-end large server farms. Today, approximately
75% of Alteon's Web switching business comes from these service providers and
hosters. Alteon plans to focus on partnering with companies that provide
specialized value-added traffic management, content, and security services such
as Akamai, Check Point, and Inktomi.
Some Service Providers and Web Hosters may also act as resellers of Alteon's Web
switches. Some examples of current hosting and service provider Alteon Web
switch users/resellers include: Global Center,
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Axient Communications, Uunet, GTE Internet, Exodus (hosting), Telstra, Cable &
Wireless, Williams Communications, Globix, ICG, Planet Online, PSINet, Digex,
and Concentric (one of Alteon's early customers)
As an example, ICG recently purchased Alteon Web switches for 150 locations
across the U.S. in order to upgrade its data network infrastructure; the Web
switches will be installed in ICG's RAS (Remote Access Server) hub sites and
POPs (Points of Presence) along with the roll-out of its Traffic Servers; one
major reason cited for selecting Alteon Web switches is the faster download time
expected for ICG's customers, low latency, best price/performance under load,
and Alteon's ability to provide additional value-added services in the future.
Alteon also targets companies (e-business enterprises) that have developed web
sites for e-commerce purposes and now handle large volumes of traffic and may
have multiple data centers. Some examples include: Reuters, Datek Online,
DLJdirect, Virgin, iWon.com!, Computer.com, FreeOnline, TicketMasterOnLine,
Excite@Home and, Yahoo! Mail.
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In addition, more recently Alteon is targeting the emerging ASP companies. A
typical ASP may purchase 20-40 boxes (Web switches) from Alteon. Examples of
current customers in this market segment include: LoudCloud, OnyxNetworks and,
Digital Island.
Alteon is currently shipping its 700 Series Web switches (for data centers) to
customers. Examples of current customers include: Concentric Network, WebTV,
NTT, Fuji Xerox, Fujitsu, Digex (an ISP), Visitalk.com (an internet-based
communications company)
Alliances and Partnerships
Alteon recently (May 23, 2000) announced the start of an OEM relationship with
Lucent whereby Lucent is reselling Alteon's 180e and ACEdirector 3 Web switches
within Lucent's IPWorX(TM) Web Performance solution under the product names
WebDirector 180 and WebDirector 80 Web switches, respectively. One of Lucent's
first customers for the Alteon Web switch products is SINA.com, a leading
Internet media company for Chinese communities worldwide. This relationship is
at risk given Alteon's pending acquisition by Nortel.
Alteon needs a substantial direct sales team to exploit the significant
opportunity in the service provider market. In terms of partnerships, Alteon is
focused on establishing strong customer and reseller relationships with all the
major hosters and ISPs. In addition to collocation and managed server load
balancing opportunities for Alteon, many service providers are beginning to
deploy Intelligent Content Networking equipment in order to offer managed global
network load balancing services. Alteon is positioning itself to address this
demand and thereby increase its sales volumes. . As an example, On July
12,2000, Alteon announced that Exodus will resell Alteon's Web switches.
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Key competition
Competition in this space is coming from two major types of products: Switches
and single targeted application appliances. The Switches or Web Switches hail
from the traditional switch space. Vendors offering intelligent content
switches include Cisco (Arrowpoint acquisition), Foundry and CyberIQ.
The vendors that have taken a traditional appliance approach include: F5
Networks, Intel, Coyote Point, Radware, and Cisco with local director and global
director. Recently, F5 Networks and RadWare announced switch architectures to
address customers performance requirements. The basic assumption of an
appliance is that it is a single-use point product that is easy to use and
simple to deploy. It allows the customer to avoid costly development,
integration, and testing efforts. The products in this space make it simple for
the overburdened IT manager to deploy specific functions such as SSL
acceleration or firewall load balancing. Alteon's iSD products would be
considered in this category.
Product Line
In marketing its Web switches--actually ultra-fast LAN switches--Alteon
emphasizes that its products are "purpose built" Layer 2 through 7 (ethernet
content-intelligent) Web switches that incorporate customer network processors,
also known as WebICs, throughout each switch. This is a different approach
from companies (i.e., Foundry) that have taken their existing products (such as
Layer 2 and 3 switches with a centralized CPU architecture) and added software
to market them as Web switches. Alteon makes a clear distinction between its Web
switch products and conventional packet switching products (that handle packets
per second).
Alteon's Web switch products' process and switch entire web sessions (at line
rates) while applying sophisticated traffic management service to the most
optimal resources at ultra high speeds. This processing is supported by Alteon's
WebIC which is a custom network processing ASIC that incorporates multiple RISC
processors. These network processors perform packet processing functions and
apply traffic management services in addition to traditional switching and
routing. Alteon's Web switch products also offer added functionality such as
traffic management services, including load balancing, HTTP header, cookie and
URL parsing, bandwidth metering, filtering, etc. to every packet. (Note: A
single web page typically requires many different sessions to download a
website.) These Web switches maintain the state of every web session and make
intelligent decisions on where to direct traffic based on TCP port numbers, URLs
and HTTP cookies and headers found deep in every packet. Alteon emphasizes one
of the key benefits for its Web switch customers (i.e., internet service
providers, hosters, and e-commerce companies) is high levels of availability
resulting from intelligent health checking mechanisms.
Alteon's product line range from the entry level ACEdirector to the high end
Alteon 700 Series. Table 1 shows product specifications for each model. The
ACEdirector is positioned as an entry-point Web
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switch. The Alteon 180 series are stackable switches provide a midrange option.
The high end Alteon 700 series is positioned in Carrier-class data center
environments. The Alteon iSD is a new line of specialized and highly-integrated
network computing devices that provide specific traffic management functions
such as SSL acceleration and "Akamaization"--automating the process of
manipulating web content for use on Akamai's global content delivery network
All the products run Alteon's Web OS software2000 (leveraging Cisco's IOS
concept). Web OS comes integrated within Alteon's ACEdirector family and Alteon
180+ Web switches,. For Alteon's standard 180 and 700 series Web switches Web
OS features can be enabled/activated with the purchase of a software key. Web
OS provides high-performance web traffic control services. The major advantages
of this approach is that these functions are available on a single platform and
customers need only be concerned with a single point of failure. Examples of
some of the traffic management functions provided by Web OS include:
. local and global server load balancing
. bandwidth metering and management
. application redirection
. filtering
. content intelligent Layer 7 switching (such as cookie parsing and URL load
balancing).
Alteon's latest release,Web OS 8.0, was announced in May. It's a software
upgrade for Alteon's (stackable) Web switches that adds a bandwidth management
solution that operates at gigabit speeds (the industry's first), advanced server
security features, and content switching services. This software release
supports Alteon's strategy of "future-proofing" its Web switches so no hardware
changes are required. Alteon's customers do not need to purchase entirely new
hardware to take advance of enhancements such as the industry's first gigabit-
class, switch-based data center bandwidth management solution and Alteon's
Virtual Matrix Architecture (VMA)--the latter enables Alteon's customers to
support many more web site visitors (a 4-fold increase in concurrent session
capacity) while speeding-up processing of web connections.
Alteon has adopted an "pay-as-you-go" (or "cafeteria") packaging strategy to
differentiate itself from its competitors (especially those in the load-
balancing product arena, e.g., F-5 Networks, Foundry Networks, ArrowPoint, and
Cisco). In this vein Alteon markets its Web switches as fully-functioned
products whereby the customer receives a robust product, but is required to pay
additional fees in order to turn-on additional functionality (a.k.a. value-added
features such as bandwidth management or global server load balancing). The
advantage is that the customer can "turn on" and pay for feature/functionality
when needed and does not have to experience lag time in the delivery of
additional Web switch functionality. All the
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functionality is contained in a single, high-performance traffic management
platform.
Product Line Strengths
The following are the strengths of Alteon's product line in Intelligent content
networking:
. IDC believes that Alteon's web switch product line is well positioned to
capture market share in the new ebusiness data center. Alteon's highly
scaleable switch fabric can meet customers web site performance requirements
as well as scale to meet peak web traffic. The switch is currently meeting
customer needs in key customer segments such service providers, and econtent
sites.
. The new iSD platform provides Alteon with a platform to deliver targeted
content networking requirements to customers. It also provides a quick time
to market approach. The integration with WebOS offers value add that
separates the solution from other appliances on the market.
. Alteon's modular pricing strategy provides customers with flexibility in only
paying for the features that they need. In speaking with lead users, IDC
found that this is an important differentiation. Many installations do not
require all the functionality available on one switch today but anticipate
that rapidly changing demands on web server infrastructures will dictate the
need to add functionality seamlessly.
. Alteon offers a full range of products from high to low end to meet diverse
customer requirements.
. Early customers purchased Alteon WebSwitches for its fully distributed
architectures to drive web site performance.
. Cisco's recent acquisition of ArrowPoint has brought increased attention to
the Web switching market and the need for content-intelligent switching
capabilities. In this context, it is likely that Alteon will be approached
for strategic partnerships and will be considered as a potential acquisition
by companies such as Nortel, Alcatel, Lucent and others. IDC believes that
Cisco's competitors will seek to partner with Alteon given Alteon's extensive
Layer 7 switching capabilities, as well as an architecture and platform by
which such services can be provided.
Product Line Weaknesses
. IDC believes that Alteon will be challenged going forward to grow its
corporate infrastructure to keep-up with the fast-pace of its Web switch
sales and the demands of its growing global customer base.
. Alteon is competing head to head with Cisco the leader in data networking.
Cisco is aggressively acquiring companies to position themselves as a leader
in Intelligent content delivery. Recent acquisitions include Arrowpoint,
SitePath and Netiverse.
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. Alteon will face competitive threats from other large providers as well as
other more targeted players such as F5 Networks, Riverstone, Foundry, Intel
and Extreme.
Sales Force and Messages
Alteon currently uses direct and indirect channels to sell its Web switch
products. In the U.S. its sales are conducted mostly on a direct basis with
some sales are made by resellers (i.e., selected ISP and hoster customers).
Lucent is Alteon's only OEM customer. Outside of the United States Alteon uses
more of an indirect sales model.
Alteon is distinguishing itself in the Web switch marketplace in defining its
Web switch products as "purpose built," as well as scaleable and easily
upgradeable (since boxes are shipped fully functioned and new features can be
activated quickly via a software key so customers only pay for the features
needed). It continues to emphasize the performance of its Web switch products.
Alteon's Web switch architecture is designed to "get users to the closest and
fastest servers." Its Web switches can reside as front-ends to servers and
caches in service providers access points of presence or as a full featured,
content-intelligent traffic management platform in front of servers, caches,
firewalls and other devices in the Web data center. The company also emphasizes
that added features such as scalable load-balancing (to servers, caches and
firewalls) and bandwidth management can be added easily as modular feature sets
to its Web switches (refer to pricing information). Its firewall load-balancing
(supports load balancing traffic to multiple firewalls) is being deployed in
customers' web data centers so user traffic can be processed in parallel among
firewalls which allows for better response times and higher availability.
Active/active redundancy is also a key feature for users enabling traffic to be
diverted automatically to another active Alteon switch in a situation of a
failed link, port or switch.
Alteon is a leader in Intelligent Content load balancing. The company is
providing the key building blocks required to build robust, reliable, scaleable,
high performance web infrastructures. Alteon's
The company's value proposition is based on the premise that it is easier and
more cost-effective for a customer (those who offer a website or a web service)
to buy Alteon web switching architecture that can improve the performance of
their web computing traffic instead of opting to assemble separate pieces (i.e.,
load balancers, bandwidth managers, etc.) and placing them in front of a server.
Conclusions
The intelligent content networking market is poised to experience significant
growth. IDC forecasts that Intelligent content load balancing revenue will
reach $4 billion by 2004. Alteon is well positioned to capture this market
growth and gain share. The company is focusing on selling to key customer
segments such as service providers, web hosters, eCommerce and eContent. The
product family is focusing on meeting customer concerns of scalability and
performance. With Nortel, Alteon has an opportunity to expand to meet the needs
of content delivery networks as well as leverage Nortel's extensive sales reach
in the service provider space.
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Caution Concerning Forward-Looking Statements
This filing contains certain statements that are based on Alteon's present
expectations of future events. These statements are "forward-looking statements"
within the meaning of the safe-harbor provisions of the U.S. federal securities
laws. These forward-looking statements are subject to risks and uncertainties
that could cause actual results or outcomes to differ materially from those
contemplated by present expectations. Factors that could cause or contribute to
such differences include, but are not limited to, risks relating to: the
consummation of the contemplated merger involving Alteon and Nortel Networks,
such as the risk that the companies may not obtain the required regulatory
clearances or stockholder approval in a timely manner or at all; the timing and
successful completion of technology and product development efforts; integration
of the technologies and businesses of Alteon and Nortel Networks; and changing
relationships with customers, suppliers and strategic partners.
These and other risks associated with the businesses of Alteon and Nortel
Networks that may affect their operating results are described in the most
recent Form 10-Q, most recent Form 10-K and other periodic reports filed by
Alteon and Nortel Networks with the Securities and Exchange Commission.
Additional Information About the Merger
Alteon expects to mail to its stockholders a proxy statement/prospectus
containing information about Alteon, Nortel Networks and the Merger. In
connection with the Merger, Nortel Networks plans to file a registration
statement on SEC Form S-4. Investors and security holders are urged to read the
registration statement and the proxy statement/prospectus carefully when they
become available.
Alteon will be, and certain other persons may be, soliciting proxies from
Alteon's stockholders in favor of the adoption of the merger agreement. The
directors and executive officers of Alteon and the directors and executive
officers of Nortel Networks may be deemed to be participants in Alteon's
solicitation of proxies. Information regarding the participants in the
solicitation and a description of certain interests the directors and executive
officers of Alteon have in the Merger is contained in the document filed with
the SEC by Alteon pursuant to Rule 425 on July 28, 2000.
How to Obtain Documents from the Securities and Exchange Commission
In addition to the registration statement and the proxy statement/prospectus,
Alteon and Nortel Networks file annual, quarterly and other periodic reports,
proxy statements and other information with the SEC. You may obtain free copies
of these documents, as they are filed, through the website maintained by the SEC
at http://www.sec.gov.
You may read and copy any reports, statements or other information filed by
Alteon or Nortel Networks with the SEC at the SEC public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's other public
reference rooms in New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Alteon's and Nortel Networks' filings with the SEC are also available through
commercial document-retrieval services.
How to Obtain Documents from Alteon
Free copies of the proxy statement/prospectus and other documents, when they
become available, may also be obtained from Alteon by directing a request
through the Investors Relations portion of Alteon's website at
http://www.alteonwebsystems.com or by mail to Alteon WebSystems, Inc., 50 Great
Oaks Blvd., San Jose, CA 94119, attention: Investor Relations, telephone: (408)
360-5500.
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