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Nortel dives into application services with buy

The network equipment maker takes the plunge into the application service provider market with its acquisition of software maker Epicon for $275 million in stock.

Nortel Networks is taking the plunge into the application service provider market.

The networking company today announced it will acquire software maker Epicon for $275 million in stock.

Epicon creates software that helps application service providers install and manage software on desktops tied to a central server.

Gartner analyst Rita Terdiman says Nortel's planned acquisition of remote management provider Epicon adds another body to any already crowded application service provider (ASP) market.

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A number of major technology firms, including Microsoft, Compaq Computer and Cable & Wireless, have recently jumped into the application service provider (ASP) market, providing a wide range of hosted services, equipment and data center capabilities. ASPs host software so customers don't have to install and manage it themselves. People access the software from their desktops, and it is typically remotely monitored from a data center.

Customers pay outside providers to run everything from complicated enterprise software installations to more common desktop applications, which are often difficult to maintain.

Though the ASP market is still in its infancy, it is expected to grow to $2 billion by 2003, according to market research firm International Data Corp.

Based in Chelmsford, Mass., Epicon was founded in 1997 and has 60 employees. It has both enterprise and service provider customers. The company will become part of Nortel's ASP Market business unit.

Nortel owns 9 percent of Epicon after taking a minority stake last year.

Today's acquisition is expected to close late in the third quarter or early in the fourth quarter of 2000 and is subject to customary regulatory approvals and approval by Epicon's shareholders.

The transaction is expected to be neutral to Nortel earnings per share from operations in 2000 and 2001. The deal is based on pricing Nortel common shares around $55.15. Nortel will issue about 4.99 million shares on a fully diluted basis. The company's stock yesterday closed up $3.06, or 5 percent, at $63.56.