Intelligent Content Networking: Alteon WebSystems Vendor Profile
Analyst: Lucinda S. Borovick
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 marketing Layer 4 through Layer 7 Web switch products. (Note:
Alteon also manufactures and markets server adapters.) Alteon's stated mission
is to lead 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 U.S.
and non-U.S. business respectively.
The following are the companies target markets;
o Service providers, as Alteon provides the front-end to large server farms.
Alteon increases the scale and performance of Web servers in the network.
o More recently, Alteon is targeting the emerging ASP companies to increase
web traffic response time.
o Ecommerce and econtent sites, use Alteon's products to enhance the
reliability and performance of the Web server data center.
o 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.
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. To further this goal, Alteon announced the
acquisition of Pharsalia on July 20, 2000, a content delivery software start-up.
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, 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.
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 will
allow Alteon to leverage Lucent's global client base. Other such strategic
partnerships are expected especially given Cisco's recent acquisition of
ArrowPoint.
Alteon needs a substantial direct sales team to exploit the significant
opportunitiy 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.
Market Forecast and Analysis
The market for Intelligent Content Load Balancing is exploding from $203 million
in 1999 to reach $4 billion in 2004 (see Table 1). This market acceleration is
based on the following assumptions:
o Service Providers, Web Hosters and ASP demand intelligent content load
balancing to deliver robust, reliable, high performance web server
infrastructures.
o Internet Content delivery networks will require intelligent content load
balancing to deliver high performance, high availability to its customers.
Intelligent content load balancing provides the infrastructure to offer
specialized value-added traffic management, content, and security services.
o Within the next two years intelligent content load balancing will move out
the edge of network.
o The increasing mission critical demand on web servers dictate the need for
high performance front-end network engine that acts as traffic cop to the
server farms.
o The increasing transaction complexity at ecommerce sites demands
intelligent content devices that analysis the traffic to increase web
server response time and end user performance.
o Intelligent Content Switches and appliances provide secure, reliable, and
fast server connections to support response-time- and mission-critical
applications.
o As enterprise accounts increasingly deploy web base applications within the
intranet the need for intelligent content networking will increase. IDC
believes that enterprise sales will begin to accelerate in 2001.
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 diFstinction 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 2 shows product specifications for each model. The
ACEdirector is positioned as an entry-point Web 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:
o local and global server load balancing
o bandwidth metering and management
o application redirection
o filtering
o 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 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:
o 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.
o 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.
o 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.
o Alteon offers a full range of products from high to low end to meet diverse
customer requirements.
o Early customers purchased Alteon WebSwitches for its fully distributed
architectures to drive web site performance.
o 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
o 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.
o 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.
o 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 Web hosting 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.
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.
Certain information included herein is forward-looking and is subject to
important risks and uncertainties. The results or events predicted in these
statements may differ materially from actual results or events. Factors which
could cause results or events to differ from current expectations include, among
other things: the impact of price and product competition; the dependence on new
product development; the impact of rapid technological and market change; the
ability of Nortel Networks to make acquisitions and/or integrate the operations
and technologies of acquired businesses in an effective manner; general industry
and market conditions and growth rates; international growth and global economic
conditions, particularly in emerging markets and including interest rate and
currency exchange rate fluctuations; the impact of consolidations in the
telecommunications industry, the uncertainties of the Internet; stock market
volatility; the ability of Nortel Networks to recruit and retain qualified
employees; and the impact of increased provision of customer financing by Nortel
Networks. For additional information with respect to certain of these and other
factors, see the reports filed by Nortel Networks with the United States
Securities and Exchange Commission. Nortel Networks disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Investors and security holders are advised to read the proxy
statement/prospectus regarding the transaction to be filed with the Securities
and Exchange Commission by Nortel Networks and Alteon WebSystems, as it will
contain important information. Security holders may obtain a free copy of the
proxy statement/prospectus (when available) and other related documents filed by
Nortel Networks and Alteon WebSystems at the Commission's website at
www.sec.gov. When available, the proxy statement/prospectus and the other
documents may also be obtained from Nortel Networks Corporation, Attention:
Investor Relations 8200 Dixie Road, Suite 100 Brampton, Ontario L6T 5P6 Canada
Alteon WebSystems, its directors, executive officers and certain other members
of Alteon WebSystems' management and employees may be soliciting proxies from
Alteon WebSystems' stockholders in favor of the merger. Information concerning
the participants will be set forth in the proxy statement/prospectus when it is
filed with the Securities and Exchange Commission.
