Alcatel snags gigabit player

European giant Alcatel became the latest telecommunications equipment provider to be attracted to data-based networking, snagging gigabit-speed start-up Packet Engines in a $315 million cash deal.

The purchase is the latest example of consolidation in what was once a high-flying segment of the market, filled with start-ups looking to unseat entrenched networking competitors such as 3Com and Cisco Systems.

The market for Gigabit Ethernet is expected to reach $1.5 billion by 2001, according to market researcher International Data Corporation. As might be expected, larger networking firms have plucked various start-ups and added gigabit technology to their product portfolios.

Alcatel's move follows the August acquisition of gigabit networking newcomer Berkeley Networks by Fore Systems for $250 million. Of the high-profile start-ups that attracted a slew of venture capital money in the mid-1990s, only Foundry Networks and Extreme Networks remain independent entities.

The interest in companies such as Packet Engines is due, in part, to their focus on equipment that supports next-generation Gigabit Ethernet, a speedy upgrade to the dominant means for connecting computers that can send data across a network at 1,000 mbps (megabits per second). Most analysts predicted that the various gigabit-speed start-ups would have a tough time once larger players entered the market.

Alcatel already has a deal with Ethernet networking specialist Xylan to distribute that company's equipment.

Packet Engines will retain its name and Spokane, Washington, headquarters, according to the company. Krish Prabhu, current president and chief executive of Alcatel USA, will serve as chairman of the company. Packet Engines employs about 200 people.

The purchase price includes an incentive plan tied to the creation of new products for Alcatel.