Oclaro Makes Its ROADM Bid

Oclaro Inc. (Nasdaq: OCLR) has decided to make its move on the hot reconfigurable optical add/drop multiplexer (ROADM) market, acquiring startup Xtellus Inc. for $33 million in stock.

The acquisition, which has already closed, gives Oclaro some ammunition against market leader JDSU (Nasdaq: JDSU; Toronto: JDU), and against Finisar Corp. (Nasdaq: FNSR), which is considered an up-and-comer. (See Oclaro Acquires Xtellus and Finisar Climbs ROADM Ranks.)

Xtellus makes a component called a wavelength-selective switch (WSS), the switching element that's at the heart of the current generation of ROADMs.

Avanex, which combined with Bookham last year to form Oclaro, had developed its own WSS, but it's not clear whether Avanex could serve larger ROADMs. Avanex's liquid crystal-based WSS was suitable for single-input, four-port (1x4) configurations, but all the hip kids in the industry are starting to use 1x9 ROADMs and are talking about even larger designs. (See Bookham, Avanex Form Oclaro and Avanex WSS Passes.)

In any event, Avanex hadn't talked about its WSS for some time, and the perception was that Oclaro was falling behind. "If they want to compete with JDSU, they've got to get their WSS business rolling, or they've got to buy one," Infonetics Research Inc. Andrew Schmitt told Light Reading recently.

Even before the Oclaro matchup was finalized, executives were apparently hinting that a ROADM acquisition was on their minds. (See Bookham's Next Buy?)

Xtellus offers liquid crystal WSSs for smaller ROADMs. For larger designs, it's got WSSs based on micro-electromechanical systems (MEMS).

Xtellus, which has 45 employees, had raised $33 million since being founded in 2000, with its most recent round having been announced about 18 months ago. The startup also picked up some old-school Light Reading cred by hiring Krishna Bala, a Tellium founder, as its chief executive. (See Xtellus Adds $8.3M and Tellium Founder Joins Xtellus.)

Bala will join Oclaro as the division manager for Xtellus, reporting to CEO Alain Couder.

ROADM components are one of the few optical-components niches that seems healthy for startups. Aside from Xtellus, there's also Nistica (which theoretically still has a partnership with Finisar), CoAdna Photonics Inc. , and Capella Photonics Inc.

— Craig Matsumoto, West Coast Editor, Light Reading