A PON in the GameA PON in the Game

3:15 PM –- From The Philter's PON-derous findings file: Did you ever wonder how an ODM called TXP Corp. (Nasdaq: TXPO) ended up with Siemens AG (NYSE: SI; Frankfurt: SIE)'s BPON and GPON ONT business unit? (See Siemens Sells ONT Biz.)

Here's how: Siemens pretty much gave the business away in exchange for royalties on future products, while keeping the core technology out of competitors' hands. The details of the deal were hidden in plain sight recently, as TXP notes in its annual report:

So Siemens traded its BPON/GPON ONT business unit away for points on future products sold. But how much money are we talking about? Keep reading:

TXP's fee to Siemens is either 2.5 percent or 5 percent of any revenues generated from BPON or GPON products sold, depending on when the product development was finished. In short, TXP pays the lesser amount if the product sold is deemed to be a "variant" of what it originally got from Siemens.

The filings state Siemens will keep getting royalties for "a period of three years or $20 million, whichever comes first."

When the deal was first signed, Siemens put the onus on TXP (well, its former staff) to finish a GPON product design by January 2007. On paper, TXP deems the business unit to be worth about $1.3 million -- an amount roughly equal to the four months of salaries TXP paid to finish the GPON design and, by way of the Siemens' agreement, keep the business unit.

TXP, which also has a business retrofitting telco cabinets, is suddenly on our radar in the race to make an ONT design that several vendors can use. There's skepticism surrounding the whole issue of ONT interoperability, so this should be fun.

But, on the strength of Siemens' castoffs, TXP says it's getting interest from major equipment makers, though nothing is out on the market at the moment. (See TXP Signs OEM and TXP Ships Parts.) For Siemens, it's hard to tell if they're in for big royalties or wreckage.

— Phil Harvey, Managing Editor, Light Reading