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Calix CEO Claims Occam for Its Ethernet

Calix Inc. (NYSE: CALX) is paying a 40 percent-plus premium for Occam Networks Inc. (Nasdaq: OCNW) in order to acquire its Ethernet access expertise and accelerate Calix's move both into active Ethernet fiber access and into the international market, according to Calix president and CEO Carl Russo. (See Calix Buys Occam for $171M.)

Speaking to analysts today, Russo compared the move to Calix's 2005 purchase of GPON vendor Optical Solutions, which he said enabled his company to move quickly into optical access, a major market for Calix today. Russo said the talent acquired then continues to propel optical product development within Calix. (See Calix to Buy OSI.) "First and foremost, this is about the most deeply experienced Ethernet access team in the business," Russo said. "Occam was the early pioneer of bringing pure Ethernet solutions to the access infrastructure -- they've been at it for over 10 years now. The No. 1 strategic rationale is that, and so we believe it will accelerate all of our plans across a unified access portfolio, especially the Ethernet side."

Active Ethernet is growing in popularity as an alternative to GPONs for all-fiber access, particularly among smaller service providers who are using it on "home-run" fiber-to-the-premises deployments. It's also popular internationally, where Calix wants to pursue significant growth. Active Ethernet only becomes more important as wireless backhaul becomes a significant driver of local loop fiber.

Calix already makes an optical network terminal (ONT) that is used in Ethernet deployments because of its ability to autodetect whether the incoming signal is GPON or Ethernet. It's also been making a major push into Ethernet, going head-to-head with Occam and other Ethernet access vendors such as Adtran Inc. (Nasdaq: ADTN). (See Calix Broadens Fiber Access Menu and Calix Claims Ethernet Momentum.)

The Occam BLC product will be brought into the Calix family of C-series and E-series products as a new B-series, and will be integrated into the Calix Management System (CMS), Russo said. That will quickly get Calix into the Active Ethernet world.

Integrating the products will "let us do what we do well, like Ethernet and VoIP, and add value to their portfolio," said Russ Sharer, vice president of marketing for Occam. "Together, we can go farther faster."

Occam has a slightly larger international footprint than Calix in terms of places where its products are deployed, but even so, Occam chairman Bob Howard Anderson admitted its international revenues are not significant. Occam today has products deployed in Guam and Australia, and some early developments in Europe and the Middle East.

Calix began its international push in the last couple of years in the Caribbean and Latin America. (See Calix Goes Caribbean.)

Russo is not expecting a major sales boom, as he projected more than $400 million in revenues for the combined companies next year. Separately the companies were projecting $333 million (Calix) and $114 million (Occam). But he also told analysts the deal would be 30 percent to 35 percent accretive to the current projections for Calix earnings of 60 cents a share for 2011.

Being a company of greater bulk also will position Calix to sell to larger service providers, Sharer said, and that becomes important for selling to wireline operators internationally, and as the wireless backhaul market takes off and fiber deployments are used to deliver wireless backhaul.

— Carol Wilson, Chief Editor, Events, Light Reading

DCITDave 12/5/2012 | 4:23:30 PM
re: Calix CEO Claims Occam for Its Ethernet

Do either Occam or Calix have anywhere near five percent of revenues, respectively, coming from outside the US? If they do, I missed that memo.

DCITDave 12/5/2012 | 4:23:30 PM
re: Calix CEO Claims Occam for Its Ethernet

Heck of a deal, though, right? Can't accuse them of overpaying.


Did they discuss how much customer and product overlap there is (will be)?

paolo.franzoi 12/5/2012 | 4:23:30 PM
re: Calix CEO Claims Occam for Its Ethernet

So Calix's internal development failed (okay Indian Development failed) and their OEM failed on the Ethernet front.  Now, going to bring across Occam.  I can't wait for that culture shock to set in down in Santa Barbara.


seven


 

Tesla_x 12/5/2012 | 4:23:29 PM
re: Calix CEO Claims Occam for Its Ethernet

WOW....what a day.


1-CALX may have just solved its margin problems...CARL should be able to get in the mid 40ish% range now with the BLC platform.


2-OCNW went for ~1.84 in cash plus shares if you consider they have almost $2 cash per share on the books now....a real steal.


3-I suspect there is minimal overlap as they both have a firm customer base, and margins may firm up with less competition....just ADTN/ZHNE/EVA now.


4-The combined entity may claim a significant (majority?) amount of stimulus dollars spent on their kind of equipment.


5-a combined eps of ~.80 possible?  ...separately they were looking at .6 and .33 in 2011.


6-the combined entity may make for an even better acquision target down the road for a larger company looking for a commanding exposure to the tier 2/3 space and the stimulus.


Indeed, a very shrewd move on the part of CALX.


 

paolo.franzoi 12/5/2012 | 4:23:29 PM
re: Calix CEO Claims Occam for Its Ethernet

 


Well, there is a bit of International in Canada - but if we exclude that I know that Calix has been working on the Carribean and that is a smallish business.  Occam has been trying to break into Europe, but I have not heard any real success out of that effort.


In terms of overlap, at the Tier 2s there is really not a lot as Occam had not gotten beyond Fairpoint.  They were taking a lot of new Tier 3 business from Calix, so I would expect a lot of overlap there.


Yeah, I am basically shocked that Occam's would take this deal.  Says to me that Adtran is a much bigger thorn in the side to Calix than they let onto.


Integration is going to be a HUGE challenge as their is not a lot of new business to acquire aka who are they going to toss out?  Adtran will be splitting business with them in the Tier 2s.  Little note on how AFC basically got solesourced at the Tier 2s for a long time....Everybody else left the business.  Basically, Marconi and Nortel were the Tier 2 competition and they gave up.  So, we turned around and found a business that nobody wanted.  As soon as Calix got mature enough, they began to nibble on that business as those company's (starting with Alltel) wanted a second source.


I can't wait to see how they are going to justify the Opex to make this work.


seven

cyber74 12/5/2012 | 4:23:27 PM
re: Calix CEO Claims Occam for Its Ethernet

Had Occam ever reported a GAAP operating profit in any year? It's difficult to be financially successful in the access business absent an economy of scale. Occam just wasn't getting there, however good their products might be. 

Toad680 12/5/2012 | 4:23:26 PM
re: Calix CEO Claims Occam for Its Ethernet

Had to be driven by the two VCs on the Occam board with decade old funds looking for a liquidity event.  The price is shockingly low and Bob and the board be ashamed of themselves.

Stevery 12/5/2012 | 4:23:20 PM
re: Calix CEO Claims Occam for Its Ethernet

Had to be driven by the two VCs on the Occam board with decade old funds looking for a liquidity event.


Another possibility, I would look at the holders of both companies stock.  For example, are any of the Calix execs limiteds in the Occam cap structure?


Pete Baldwin 12/5/2012 | 4:23:19 PM
re: Calix CEO Claims Occam for Its Ethernet

Good points about the Occam ownership, folks. Let me offer another suggestion (which I doubt you'll like, but...)


Occam might do good work but it's felt like a Wall Street nonentity for the past few years. I've never gotten the feeling that Occam gets that much attention from institutional investors. Stimulus money or no, maybe Occam doesn't have much chance to go places as a standalone stock.


Just a theory. Fire away.

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