Calix-Occam Surprises

6:00 PM -- Today's news that Calix Inc. (NYSE: CALX) is buying Occam Networks Inc. (Nasdaq: OCNW) for $171 million was a surprise to me on many fronts. (See Calix CEO Claims Occam for Its Ethernet.)

First, the two have gone head-to-head in the access market, particularly in the Tier 2 (and smaller) telco space, for so long that it seemed unnatural for them to come together, and more natural for a larger company not in this space to acquire Occam.

Second, Calix has been touting its growing Ethernet expertise for some time now but, according to CEO Carl Russo, wanted to buy Occam primarily for its Ethernet-savvy engineers. (See Calix Claims Ethernet Momentum.)

And third, the price -- $171 million -- seemed a little low to me, even though it represented a significant premium over the current stock price.

I'm going to let the financial wonks figure out just how big a bargain Mr. Russo got for himself this time around, but I asked Calix marketing guru Geoff Burke about the Ethernet message: Why, if Calix has all this Ethernet expertise, did it need to buy Occam?

"There's two things," Burke responded. "First, they have been doing Ethernet, solely Ethernet, for a decade-plus. We have learned that, in the fiber access space, there are nuances that you learn with experience that are something we believe we can leverage with regard to the engineering team Occam has in place."

In other words, field experience counts, particularly when deploying in the access segment, where conditions and challenges can vary widely.

"The second element," says Burke, "is that the Ethernet and fiber access space is growing and innovating so rapidly, there is no lack of innovation and new features and products we can bring. Expanding our engineering resources to address growing needs is a true need, especially with market dynamics changing so quickly."

One of those market dynamics that has changed dramatically is the expectation for bandwidth –- it was not much more than a year ago that service providers thought 25 Mbit/s into the home was plenty, and now everyone assumes that 100 is the minimum.

Delivering that kind of bandwidth is going to put pressure on GPON networks, where 2.5 gigabits downstream is shared among 32 homes. If all 32 homes are buying service -- and while that's rarely the case, you have to plan for it -- then the max speed downstream for each home tops out under 80 Mbit/s. It's those kinds of numbers that have smaller telcos, in particular, leaning toward active Ethernet and home-run fiber to future-proof their networks.

The other market dynamic that Burke spells out is pending regulation, which could take this whole access market in a different direction.

If, in fact, the Federal Communications Commission (FCC) makes broadband access a Title II service, essentially re-regulating it, investment in broadband may slow way down, as it has in Europe following open access regulation there. That could be one explanation for the remarkably low price: Occam's board is hedging its bets and Calix is the beneficiary. (See FCC Looks to Reclaim Its Broadband Mojo .)

— Carol Wilson, Chief Editor, Events, Light Reading

Tesla_x 12/5/2012 | 4:23:28 PM
re: Calix-Occam Surprises


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