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A PON in the Game

Phil Harvey

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:

In November of 2006, TXP completed a reciprocal exchange transaction with Siemens Networks GmbH Co. pursuant to a Transfer and License Agreement executed by both TXP and Siemens. TXP received the following as a result of the exchange:

  • Component inventory intended for the manufacture of Optical Network Terminals
  • Fixed assets including technical equipment, machinery, tooling used in the design of ONT products and related operational software;
  • Computer servers, personal computers, and computer peripherals; and
  • Siemens granted TXP non-exclusive, non-transferable and non-sub licensable right and license to use, modify or otherwise deploy documents, data, software code related to the ONT business. Siemens granted TXP non-exclusive, non-transferable and non-sub licensable right and license under the pertinent patents related to the ONT business.

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 is obligated to pay Siemens royalties for the rights and licenses related to BPON and GPON ONT's granted to TXP by Siemens pursuant to the Transfer and License agreement.

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

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