The big boys just can't keep their hands off the little guys in the networking industry.
Ascend Communications (ASND) dipped into its bank account to grab Whitetree, a privately held maker of high-performance local area network (LAN) switches, for $71 million in stock. The move can be interpreted in two ways: as the first in a series of acquisitions as Ascend expands its product line, or as a purely technological acquisition that fits into Ascend's current strategy.
Ascend's focus on remote access switching products intended for Internet service providers (ISP) and telecommunications carriers has placed it at the epicenter of one of the fastest growing vertical markets in networking. Ascend's focus on the space has left its stock relatively unscathed during a tumultuous period for networking vendors on Wall Street. But a move toward LAN switching would seem curious for a company that has grown so fast by offering a simple strategy to customers.
"Whitetree brings to Ascend key technology and product capabilities which will be instrumental in addressing our needs for future products and enhancements," Bernie Schneider, Ascend's vice president of strategic business development, said in a statement.
Whitetree specializes in Application Specific Integrated Circuit (ASIC) chip technology which basically provides a set of high-speed enhancements for specific applications running through networking hardware such as switches. Whitetree is known for the autosensing capabilities in its switches for 10-mbps and 100-mbps Ethernet and asynchronous transfer mode (ATM) networking pipes.
ASIC technology should serve Ascend's current market focus well. As ISPs and carriers ramp up for Internet growth, higher speed links--such as those provided by 1000-mbps Ethernet and ATM--will be necessary to address the variety of customer requests for value-added network services. Down the road, Ascend may purchase more LAN expertise to round out its offerings.
Under the agreement, Ascend will issue about 1.1 million shares of stock to Whitetree shareholders in exchange for all outstanding Whitetree shares. Shares of Ascend closed at 64-1/4 a share Friday.
Whitetree's CEO Maureen Lawrence will join the Ascend management team as vice president of marketing.
Though it might seem incongruent for Ascend to dive into the dog-eat-dog LAN switching market when they have had so much success providing WAN remote access gear, some believe the company has decided to add to its array of offerings to survive in a "one-stop shopping" era.
"[Ascend] is very dependent on one line of products," said Thomson Kernaghan & Company analyst Richard Woo. He explained that Ascend gets 85 percent of sales from its Max family of WAN access switches.
By acquiring Whitetree, Ascend broadens it reach. "It is trying to diversify and spread out product risk by enhancing existing products and by adding to its product portfolio," Woo said.
Others believe the acquisition makes sense for Ascend because it gives them more high bandwidth technology for its current markets. "If they wanted to go after the LAN space, they would need more than what Whitetree has," said Craig Johnson, principal analyst for Current Analysis, a market researcher based in Ashburn, Virginia.
The InterCon acquisition will be accounted for as a purchase, costing about $12 million. In the Whitetree deal, Ascend will absorb about $9 million in liabilities.
Both acquisitions will result in one-time charges against Ascend's operating income for the quarter ending March 31. In December, Ascend acquired network management tool vendor StonyBrook Services for about $29 million in stock.