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Alcatel & TiMetra Seal the Deal

Light Reading
News Analysis
Light Reading

Today, Alcatel SA (NYSE: ALA; Paris: CGEP:PA) announced it will buy stealthy IP/MPLS edge routing startup TiMetra Networks for $150 million in stock (see Alcatel to Buy TiMetra).

Light Reading broke the story of the possible acquisition on Wednesday (see TiMetra for Sale?).

The all-stock deal is a good one for TiMetra, which hasn’t yet revealed details of its IP service edge router and has no announced customers. Venture capitalists around Silicon Valley, who had speculated about the deal before it was announced, were surprised at the final price tag.

”Wow!” writes one VC, who didn’t want to be named, in an email to Light Reading. “What a ridiculous price. I'd like that banker representing TiMetra to be on my team! He can sell ice to Eskimos!”

If TiMetra turns out to be a sled-dog, it wouldn’t be the first time Alcatel overpaid for a startup. Back in 1998, it spent $325 million to buy Gigabit Ethernet startup Packet Engines. That acquisition went sour, and the company eventually shut down the division (see Alcatel's Packet Engines Break Down). Packet Engines' former CEO Bernard Daines ended up suing Alcatel over the deal gone bad (see Alcatel Settles with Daines).

But TiMetra says its irons in the fire are heating up. Basil Alwan, TiMetra’s president and CEO, admits the startup has been stealthy about its products, but he claims there are prototypes in customer trials. Details of the edge router will be announced at Supercomm 2003 in early June, he says.

Alwan says Alcatel wasn’t the only company interested in TiMetra. He claims the startup had multiple suitors that had made serious offers, some that included substantial cash in addition to stock. Some observers speculate that Siemens AG (NYSE: SI; Frankfurt: SIE) and NEC Corp. (Nasdaq: NIPNY) were among those interested.

Alwan denies that TiMetra has been desperately shopping itself around to find a buyer. He says the company was on the verge of signing a new term sheet for its third and final round of funding, when it decided at the last minute to entertain acquisition proposals. He claims the company had raised over $50 million in cash in its first two rounds.

The first round, led by Accel Partners, Redpoint Ventures, and an unnamed company, was for $23.6 million. A year later, in 2001, the company got another $25 million plus from an unnamed strategic partner, which Alwan describes as a major supplier. The round was never announced or reported, and details are still not available.

Alcatel seems pleased with the deal. “We did our due diligence and had been researching a number of alternatives,” says Tim Krause, senior vice president of the fixed communications group at Alcatel. “We have a lot of confidence in TiMetra’s technology, and we’re confident in the customer lab evaluations.”

All 90 of TiMetra’s employees, mostly engineers, are expected to stay with the company. Basil Alwan says he will also work for Alcatel, running the TiMetra product area. But he and Tim Krause say it’s too early to talk about specifics. The deal is expected to close in the third quarter of 2003.

Krause says the TiMetra router will fit in with Alcatel's 7770 Core IP router, 7670 Routing Switch Platform IP/MPLS switch, and Omni Ethernet switches.

Specifically, carriers will be able to use the TiMetra box to provide better service-level agreements to customers, Layer 2 MPLS VPN services, and virtual private LAN services (VPLS) -- a multipoint MPLS VPN service based on Ethernet.

TiMetra has been at the forefront of the VPLS standards developments (see Virtual Private LAN Service). Vach Kompella, an engineer working at TiMetra, is one of the authors of Lasserre–V.Komplella, the most widely supported VPLS draft in the Internet Engineering Task Force (IETF) (see Kompella vs Kompella).

But VPLS has strong critics. Luca Martini, a senior architect at Level 3 Communications Inc. (Nasdaq: LVLT) and the author of the widely used Layer 2 point-to-point MPLS VPN implementation, has told Light Reading that he thinks VPLS doesn’t scale well and that he really sees no useful or practical purpose for it. (To get more, check out his interview: Luca Martini, Level 3.)

There could another strike against TiMetra -- its router won’t support broadband aggregation, Alwan acknowledges. This could be viewed as a disadvantage. Cisco Systems Inc. (Nasdaq: CSCO) and Juniper already offer B-RAS (broadband remote access server) functions on their routers. Redback Networks Inc. (Nasdaq: RBAK) is supposedly adding it to its edge router, and Laurel Networks Inc. has recently announced B-RAS support (see Laurel Joins B-RAS Pack). IP service switches like those from CoSine Communications Inc. (Nasdaq: COSN), Network Equipment Technologies Inc. (net.com) (NYSE: NWK), and Nortel Networks Corp. (NYSE/Toronto: NT) also offer it (see CoSine Unveils Next-Gen Silicon).

This acquisition seems to be part of a trend. On Tuesday, Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) announced that it will acquire IP/MPLS multiservice startup Vivace Networks for $135 million (see Tellabs Snags Vivace for $135M). And last month, Ciena Corp. (Nasdaq: CIEN), which sells optical switching and transport gear, bought multiservice startup WaveSmith Networks Inc. (see Ciena Nabs WaveSmith). Two weeks ago, Lucent Technologies Inc. (NYSE: LU) announced its partnership with Juniper Networks Inc. (Nasdaq: JNPR) (see Lucent Partners With Juniper).

It’s no coincidence that all these partnerships and acquisitions are happening at once. Carriers are getting more and more serious about IP/MPLS deployments, and that’s forcing equipment vendors to quickly come up with strategies (see BellSouth Unveils MPLS Backbone).

“We’ve passed the point of IP/MPLS hype, and now it’s a reality,” says Stephen Kamman, an analyst with CIBC World Markets. “Carriers are asking for it now, but just like the transition to ATM in the early 1990s, it won’t happen overnight.”

— Marguerite Reardon, Senior Editor, Light Reading

Want a deeper understanding of MPLS? Check out the first module of Light Reading University's course on the topic. Click on this link to check it out for free!

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User Rank: Light Beer
12/5/2012 | 12:03:07 AM
re: Alcatel & TiMetra Seal the Deal
Would it really cost Alcatel more than 135 million to develop this? It seems like a very large number to accomplish this.
User Rank: Light Beer
12/5/2012 | 12:03:02 AM
re: Alcatel & TiMetra Seal the Deal
Timetra has no customer and no complete product to sell. In view of this the acquisition seems to be very odd. Previously Alcatel has acquired a lot of useless companies that almost bankrupted Alcatel.

TiMetra has no special product attributes.
User Rank: Light Beer
12/5/2012 | 12:02:59 AM
re: Alcatel & TiMetra Seal the Deal

Slight correction:

G«•Wow!G«• writes one VC, completely dumbfounded and still trying to figure out what IP/MPLS stands for, in an email to Light Reading.

Give me a break. An un-named VC? Do you think that it is possible this guy might be clueless? Obviously yes in this case.

What do you think the odds are on a typical VC understanding the fine points (or even the basic points) around next-gen routers? Note to Light Reading: there are some great VCs out there - it would be worth your while to find them. If you do, you might get some insightful quotes that are worth reading.
User Rank: Light Beer
12/5/2012 | 12:02:56 AM
re: Alcatel & TiMetra Seal the Deal

all your base are belong to us!

(thanks gea!)
User Rank: Light Beer
12/5/2012 | 12:02:56 AM
re: Alcatel & TiMetra Seal the Deal
how about:

`Wow! writes one VC, who didn`t get to participate in washing out the startup and forcing them to be sold for less so he can make money for doing nothing.`

LR, you have no credibility at all... only entertainment value.

G«•Wow!G«• writes one VC, who didnG«÷t want to be named, in an email to Light Reading. G«£What a ridiculous price. I'd like that banker representing TiMetra to be on my team! He can sell ice to Eskimos!G«•

User Rank: Light Beer
12/5/2012 | 12:02:50 AM
re: Alcatel & TiMetra Seal the Deal

An entire netmgt team has been requested on their
job site for months. They either built a totally home-grown management system or something TL1-based, and now have to "add" (reverse engineer) an SNMP-based system.

The other possibility is that Alcatel has been
in negotiation with them for 6 months or more,
and expected Alcatel to do this work for them.

If you are at Alcatel/TiMetra and are responsible
for fixing this, let me know, I can help

User Rank: Light Beer
12/5/2012 | 12:02:48 AM
re: Alcatel & TiMetra Seal the Deal
they had the same job listings for like last 2 years. Maybe they just did not take these listings off teir jobs page?

However, how does it make them unmanagable? They do have an NMS team and some sort of NMS type of product though.

BTW, why would you think that they would do anything TL-1 based? This is somewhat unusual for the type of box they are/were building.

Lemme ask you a question.. What is wrong with a home grown NMS? Have you seen a third party solution that was any decent and scaled? Please do name one.

Do you work for Lumos?
User Rank: Light Beer
12/5/2012 | 12:02:46 AM
re: Alcatel & TiMetra Seal the Deal
How about:

"Wow, I would give my left b_ll to sell my stupid, hopeless equipment companies for half that."

That would be a credible, accurate representation of investor sentiment in this space at the moment. It's a "take the money off the table" kind of atmosphere.

Timetra at $150M is a damn good deal for everyone including Alcatel.

I like this model. Spend $30-40M rather than 100-plus and get the thing into trials, get the customers interested (SBC will buy it now) then sell to the company that can actually finish, build, install and support the thing.

The price seems in line with the value, though it's unclear how much value is here until the box is able to demonstrate an ROI.

User Rank: Light Beer
12/5/2012 | 12:02:46 AM
re: Alcatel & TiMetra Seal the Deal
How about:

G«£Wow! Writes one VC, who wishes he invested in TiMetra and not the worthless pile he is holding.

It seems that LR is not happy that they got almost every single fact wrong when they first broke the story. Great leg work LR! You could have at least read your first article on TiMetra. It would have confirmed the $50M investment

G«•Wow!G«• writes one VC, who didnG«÷t want to be named, in an email to Light Reading. G«£What a ridiculous price. I'd like that banker representing TiMetra to be on my team! He can sell ice to Eskimos!G«•
User Rank: Light Beer
12/5/2012 | 12:02:44 AM
re: Alcatel & TiMetra Seal the Deal
My options are going to make me rich!!!!
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