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Intel to buy Shiva

Intel and Shiva announce they will merge in a deal that will integrate Shiva's products into Intel's networking product line.

    Shiva has found its knight in shining armor in Intel.

    And Intel is getting a jump on the increasingly lucrative virtual private network business, and, possibly, the even more lucrative voice-over Internet market.

    Intel announced this morning it is paying $185 million for virtual private network (VPN) and remote access equipment maker Shiva, in a cash-transaction that analysts say is a good deal for both sides.

    "Shiva needed this acquisition, I'm afraid," said Brad Baldwin, analyst at International Data Corporation in Framingham, Massachusetts.

    Shiva last year bought Canadian VPN product maker Isolation Systems for about $35 million. The purchase gave Shiva the trump card it needed to turn itself into an attractive buy as the market for its remote access products continued to slide, Baldwin said.

    "Integrating direct dial with VPN made Shiva a much more sellable company," he added. "It became a very attractive investment. No one wanted to buy remote access technology alone."

    So, in rode Intel with its offer of $6 a share for outstanding Shiva stock, a slightly higher offering than the current trading price of Shiva shares.

    For Intel, it provides not only the channels to enter new markets but also the technology it was seeking to go after the lucrative virtual private network market. Shiva is also expected to make announcements this week about its plans for making equipment for voice over IP, a system that will turn the Internet into a telecommunications system, another business that is expected to become highly profitable in years to come.

    Virtual private networks allow companies to create secure channels on public networks like the Internet, giving them instant wide-area networks without the deep infrastructure costs.

    Large and small companies alike are eyeing the new technology as a relatively cheap and easy way to link up their scattered sales and support offices spread around the country.

    For now, Intel executives said their firm's strategy is to make equipment for medium and small companies and private consumers and to let other companies handle the larger companies with Intel playing a smaller role.

    "For the enterprise and carrier customer, we have no plans for a branded family of products," said Mark Christensen, general manager of Intel's network products division. "Our strategy is silicon to provide the building blocks" to others to build equipment for larger companies.

    But Baldwin believes Intel will likely enter the larger deals. Shiva's VPN system is sellable and capable of handling the large company's needs but its name has always been synonymous with small companies and individual users. With the Intel now stamped on its products, large corporations may be more willing to give Shiva products a chance for something other than letting a few telecommuters dial into the corporate network.

    Today's purchase also serves to quell rumors Intel is buying 3Com, another network equipment maker that is rumored to be looking for a suitor. Intel and Lucent Technologies had been suspected of courting 3Com but now Lucent seems to be left alone to vie for 3Com's hand.

    The Intel-Shiva deal is expected to be completed by year's end following shareholder and regulatory approvals.

    Intel is an investor in CNET: The Computer Network, publisher of News.com.