GEC is shedding its defence business to focus on networking equipment, kicking off the strategy last month with the $2.1bn purchase of US-based Reltec. While Fore provides a key data-networking product, GEC still lags behind Alcatel and rival European equipment makers in the range of gear it can offer. "They're not even in the same category as Alcatel and the others when it comes to networking products," said Craig Johnson, an analyst with Pita Group in Portland, Oregon.
GEC is changing its strategy to reflect the shrinking European defence business, where government spending has dropped by a third in the past decade. "They have decided to try and become a telecom manufacturing giant," said Howard Wheeldon, an analyst at Matheson Investment Management. Annual sales of internet equipment to phone companies are expected to reach $50bn by 2005.
Buying Fore gives GEC some of the most sophisticated asynchronous transfer mode, or ATM, switches sold to phone companies. Fore's equipment is used by businesses including Delta Air Lines, phone companies such as GTE and internet service providers including UUNet, a unit of MCI WorldCom.
Still, some analysts said that Fore lacks a strong position in selling internet protocol-based networks, which are less expensive to operate than ATM networks.
"It doesn't give them critical mass in internet technology and you're probably going to see more acquisitions in that area," said Adnaan Ahmed, an analyst at Merrill Lynch.