The acquisition this week of Bay Networks by Nortel (Northern Telecom) for $9.6 billion (£6.8 million) signals good news for both companies' manufacturing bases in the State. The link-up is the biggest to date among telecom and data network systems providers and will give rise to one of the first Internet Protocol (IP) based integrated networks. Nortel employs more than 800 people at its European manufacturing base in Galway and Bay Networks employs 90 people at its Shannon facility.

According to Mr Paul Gracie, Bay Networks's channel manager for Ireland, the deal should open up significant expansionary opportunities for European manufacturing.

"Without question, this should lead to an increase in manufacturing capability in Ireland. The merger will generate greater market opportunities stemming from the sale of complete data transfer technology from a single source of supply."

The deal makes California-based Bay Networks a wholly-owned subsidiary of Toronto-based Nortel. Bay Networks has fallen behind its competitors, Cisco Systems and 3Com, in supplying equipment for voice and data networks. Industry analysts say the company, which is the result of a 1994 merger of then fast growing network equipment suppliers Wellfleet and Synoptics, has failed to live up to growth forecasts.

Meanwhile, Nortel has been surpassed by telecom equipment maker Lucent Technologies which has secured key contracts and introduced new products more quickly. Now it is hoped the best practices of both companies will be combined.

Mr John Roth, chief executive officer of Nortel, said: "With this transaction, Nortel and Bay Networks will effectively break out and redefine the centre of the information industry the unoccupied space where data and voice networks, driven by the Internet, are expected to converge."

Technology barriers dividing phone equipment and computer network suppliers have collapsed as the Internet has blurred distinctions between internal office systems and long-distance phone networks.

The industry push to merge voice, data and video technologies can be harnessed using Bay Networks's leading IP expertise. Nortel predominantly operates in the backbone data carrier market facilitating wide area networks (WAN) for telecommunications carriers and very big corporations. The new company will aspire to deliver a boundary-less network enabling seamless data transmission from desktop to desktop anywhere at any time. Nortel will build on Bay Networks' well-established channels of distribution, as well as its significant presence in the enterprise and Internet Service Provider markets.

Under the deal, Mr Roth, will remain chief executive officer and a director of the corporation. Mr David House, chairman, chief executive officer and president of Bay Networks, will become president of Nortel and be appointed to the Nortel board of directors. The boards of directors of both companies have approved the deal, which needs clearance from shareholders and regulators.