Nortel Networks has teamed up with router maker Avici Systems in an effort to bolster its Internet Protocol product offering.
The three-year contract calls for Nortel to sell and support Avici "core" routers, which are used to shunt large amounts of traffic across a carrier's network. Avici will become Nortel's "preferred partner" for IP core routers, and the two companies will work together to integrate the Avici products into Nortel's existing product management system.
Nortel, which already owns less than 5 percent of Avici through a previous investment, will be granted stock warrants to buy shares of Avici in the future.
Under the terms of the agreement, Nortel will have the option to buy 800,000 shares of Avici common stock at $8 per share. The warrant can be exercised after seven years, but Nortel may be able to cash in those options earlier if it meets certain, unspecified performance goals.
The reseller relationship provides Nortel with a much-needed IP routing product. Even though the company has resold some routing gear from Juniper Networks over the past few years, it has not had a comprehensive IP routing solution. The partnership with Avici gives Nortel a routing solution that is integrated into its own product portfolio.
"Large telecom companies, like Nortel, that don't have much IP expertise need these types of partnerships," said Kevin Mitchell, an analyst with Infonetics Research. "That's how Juniper got on the map."
The deal also is a good move for Avici, which counts AT&T as its only major customer. Although it has been shipping products since 1999, it has only about 3 percent market share, according to third-quarter 2003 figures from Infonetics Research. Cisco Systems and Juniper dominate the market.
While the deal could benefit both Nortel and Avici, it may complicate other reseller relationships they each have. Avici has a reseller agreement in China with Huawei Technologies, and Nortel has a relationship with Juniper.
Nortel downplayed the possible conflict. Jim Dondero, vice president of marketing for wireline networks at Nortel, said the company plans to only sell Juniper's M-series "edge" routers and will not sell the company's T-series routers, which compete with Avici's "core" routers. But depending on the size of a network, Juniper's M-series routers could compete with Avici's lower capacity SSR and QSR routers.
"Avici is our preferred partner for the core," he said. "And we will focus on that relationship."
Susan Ursch, a spokeswoman for Juniper, said the company's relationship with Nortel has always been on a case-by-case basis. The last time the two partnered on a deal was in January 2003.
"It's really more of a tactical relationship rather than a strategic one," she said. "But I don't see that changing in the future."
Juniper has several strategic partnerships including ones with Ericsson, Lucent Technologies and Siemens. Over the past year, Ericsson and Siemens have together consistently contributed more than 10 percent to Juniper's quarterly revenue.