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Nortel's product delay is rivals' boon

The company's delay in shipping a new high-speed networking device could be a financial godsend for Juniper Networks and other competitors.

Nortel Networks' delay in shipping a new high-speed networking device could be a financial godsend for Juniper Networks as well as for other rivals, analysts say.

Nortel is two months behind in releasing its Versalar 25000, a high-speed router that manages heavy Internet traffic for telecommunications carriers and Internet service providers. A router is a device that sends Internet traffic over a network at high speeds.

"This is the biggest hole in Nortel's product portfolio. They have to do something because they're leaving a lot of money on the table," said Raj Mehta, an analyst at market research firm Ryan Hankin Kent (RHK).

Now sources say Nortel may turn to its smaller rival in an attempt to fill orders while it puts the finishing touches on its new high-speed router line. A source close to Juniper says Nortel is negotiating with the company on a partnership that would allow Juniper to sell its own high-speed router to Nortel customers.

Nortel spokesman Andrew Lark said the two companies are in talks but declined to state the nature of the discussions. He added, however, that Nortel expects to make an announcement on its high-speed router strategy soon.

The Canadian network equipment maker is working to compete against leaders such as Cisco Systems and other players such as start-up Juniper in the market for high-end routers for the Internet "backbone," or the high-speed channels where the bulk of Net data travels.

While Nortel lags, rival companies could gain an advantage, analysts say. Companies such as Lucent Technologies, Foundry Networks and Avici Systems are all working on their own high-speed routing technologies. The setback also allows established players in the high-end market--Cisco and Juniper--to continue to grab market share.

The market is expected to grow from $2.1 billion this year to $12 billion in 2003, according to RHK. Cisco has captured 85 percent of the market, while Juniper owns 15 percent.

Lark said Nortel may even consider cutting the Versalar router entirely to push forward with plans for its faster high-speed router based on optical technology, the Optera Packet Core.

Fiber-optic networks see story: Cashing in on fiber opticstransmit signals as pulses of light rather than as electronic signals, allowing them to handle a greater volume of traffic at higher speeds.

Lark downplayed the company's delay, stressing that although the high-end router market makes up a large percentage of Jupiter's revenue base, it's a small portion of Nortel's overall business plan.

"This is a zero market for us," he said. "Without this market, Juniper would be toast. But this is not a core market for us. It's a small part of the overall solution."

Nortel derives the bulk of its overall revenue base from the sale of networking equipment to service providers. Last quarter, Nortel's service provider sales increased 64 percent, making it the company's fastest growth area.

But by the time Nortel releases its Optera product in January, analysts say several rivals, including start-ups such as Charlotte's Web Networks and Pluris, will already have shipped their high-end routers. Nortel could run the risk of being shut out of the market if it doesn't come out with products by the first half of 2001.

"Their window of opportunity is two or three quarters," Mehta said. "It will be challenging because there will be fierce competition."

Burton Group analyst Dave Passmore said a deal with Nortel would be a major coup for Juniper, which is itself struggling to compete against Cisco. Ericsson recently began selling Juniper routers under its own brand.

Juniper has managed to take 15 percent of the market after shipping its first router less than two years ago. With the Ericsson and Nortel deals, Juniper would have a chance to grab more market share from Cisco, analysts say.

In the short term, a partnership with Juniper would be a good defensive move for Nortel, said Dataquest analyst Tim Smith.

"When they have a big announced major product and can't deliver, it's not only a black eye, it hurts revenue," he said.