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Nortel spins off low-end networking subsidiary

The networking equipment firm becomes the latest company to spin off its home networking division so it can better compete in the growing market.

Nortel Networks today announced it has spun off its NetGear home networking subsidiary into a separate company.

NetGear makes technology that allows consumers and small businesses to network their PCs together, so they can share files, printers and a single Internet connection.

The new standalone firm competes with Intel, S3's Diamond Multimedia, an alliance between 3Com and Microsoft, and others in the emerging home networking market that is expected to grow from $600 million in revenue in 2000 to $5.7 billion by 2004, according to market research firm Cahners In-Stat Group.

Nortel, which makes networking equipment for businesses and telecommunications carriers, becomes the latest company to spin-off its home networking division. IBM gave its home networking division its independence in January.

Like the IBM spin-off, Nortel's move today gives its home networking subsidiary the autonomy and resources it needs to compete in the growing home networking market, said analyst John Todd, of C.E. Unterberg, Towbin.

"Nortel has more of a corporate and service provider orientation, and NetGear is more consumer focused. They're misaligned," he said. "If you look at the next high growth area in networking, it's supporting the infrastructure for residences and small offices. The space is attractive, and setting it up as a standalone operation increases its degree of freedom."

While Nortel still owns about 90 percent of the company, NetGear today announced it has received a $15 million investment from investment firm Pequot Capital Management.

"The capital coming in allows us to enlarge our research and development capabilities to extend our technology and product portfolio," said NetGear chief executive Patrick Lo.

The new firm, which currently has about 50 employees, hopes to have an initial public offering, but has set no timetable, Lo said. In the 1999 fourth quarter, NetGear had $33 million in sales. Lo said the company expects a 10 to 15 percent increase in each sequential quarter.