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Nortel set to cut prices, unveil licensing pacts

The network equipment provider will cut prices on its routing technology tomorrow and license software in an attempt to beat Cisco at its own game.

Nortel Networks will tomorrow detail a two-pronged strategy intended to hit rival communications equipment provider Cisco Systems where it hurts.

Nortel plans to cut prices for its network routers by as much as 50 percent, according to industry sources. The move is part of the Brampton, Ontario-based company's goal of becoming more competitive in the market for network devices and the software that runs in them. The lucrative market now dominated by Cisco.

Nortel also will detail plans to license its routing software code to third parties, including Intel and Microsoft, for use in operating systems, "thin client" devices, Palm-based computers, and set-top boxes, according to sources. The company is already said to have issued 200 software licenses for its routing code to third parties, these people said, as part of an effort Nortel calls the "Open IP Environment."

At the core of network routing devices is software that directs network traffic. Nortel apparently aims to shift its networking focus to software, essentially leaving hardware concerns to its rival Cisco.

"There's no way they're going to get top billing in the router market--Cisco owns it," one industry insider said. "But not the market for the enabling technology."

A Nortel spokesman declined to comment on the company's unannounced plans.

Nortel is looking to draw users away from current routing technology, toward all-encompassing routing software that can link many different computers to Nortel's fiber-optic based equipment, according to industry observers. The initiative also furthers the company's aim to reconstruct itself as an Internet-based company.

The announcement's timing isn't coincidental. Nortel plans to announce its newest business deals the same day rival Cisco releases earnings for its most recent quarter.

Cisco is expected to announce per-share earnings of 23 cents for its first quarter, according to consensus estimates compiled by First Call. The announcement is likely to be closely watched, given recent rumors that Cisco may miss Wall Street's expectations.

In 1998, Cisco garnered 70.5 percent of the routing market, compared with Nortel's 9.1 percent share, according to market researcher Dataquest.

Bay Networks, the data-oriented networking firm Nortel acquired in 1998, purchased routing technology last year for use in the Open IP environment.

Nortel plans to discount its line of so-called enterprise routers, sources said. The cost of the technology is dependent on how complex the installed software is. Base prices run as low as $30,000, according to industry analysts.

Though there are few specifics, Microsoft plans to incorporate Nortel's software in an upcoming release of its Windows 2000 operating system, according to sources. Windows 2000 is scheduled to ship to customers early next year.

Intel plans to use the software in conjunction with its burgeoning networking chip business, sources said.

A Cisco spokesman seemed unconcerned with Nortel's new plans. In response to the strategy, the spokesman said that Nortel's routers will "finally be priced what they're worth."