Nortel spins off blade server switch business

New company, Blade Network Technologies, will compete with Cisco Systems

Networking equipment vendor Nortel Networks Monday said it is spinning off its blade server switch business into a new company called Blade Network Technologies.

Private equity firm Garnett & Helfrich Capital contributed an undisclosed amount of capital to Blade Network Technologies and is the controlling shareholder. Nortel, which retains a minority stake in the new company, contributed intellectual property and customer contracts, namely with blade server giants Hewlett-Packard and IBM.

The technology spin-off isn't the first for Garnett & Helfrich, which formed in 2004 to invest in midsize technology spin-off ventures. Last year, the equity firm spent US$35 million in April for a controlling stake in thin-client device and technology maker Wyse Technology. Later, in November, CA spun off its open-source Ingres database software business and Garnett & Helfrich became Ingres' major shareholder.

Officials for Nortel, which is still in the process of recovering and rebuilding after its accounting scandal of 2004, said the spin-off is in line with the company's ongoing transformation.

"We are focusing on only the technologies and investments that are strategic to our core business," said Eric Schoch, vice president of business development for Nortel.

Blade Network Technologies will now go head-to-head with Cisco Systems selling blade server switches. These switches are used to connect blade servers on a network. HP and IBM own the lion's share of the blade server market, which analyst firm IDC expects to grow to US$10 billion by 2009.

Vendors such as IBM and HP will find Blade Network Technologies attractive because it will be solely devoted to supplying network infrastructure for blade servers, said Vikram Mehta, former general manager of Nortel's blade server switch business unit and now president and CEO of Blade Network Technologies.

Nortel's Mehta and Schoch will also take seats on the board. David Helfrich, managing director of Garnett & Helfrich Capital, will reside as chairman, and his partner Terry Garnett, also managing director at Garnett & Helfrich Capital, will also take a seat on the board.

The new company's headquarters is located in Santa Clara, Calif. Financial terms of the transaction were not disclosed.

Copyright © 2006 IDG Communications, Inc.