Nokia Nabs Amber for $421M

Nokia Corp. (NYSE: NOK) today announced after the markets closed that it is acquiring startup Amber Networks Inc. in a stock-for-stock swap set at $421 million (see Nokia Buying Amber). The price is payable in newly issued Nokia shares and partly as Nokia stock options for all outstanding securities of Amber.

The deal looks to be a good one for Amber, especially in these challenging economic times. Startup companies face a funding crisis and are more likely to complete development with a deep-pocketed partner. According to the recent report, "Valuation Deflation," published by Light Reading's subscription research service, Optical Oracle, Amber's valuaion was pegged somewhere in the range of $300 million after its last round of funding. Research firm Venture Economics says Amber Network's recent valuation was $540 million.

Amber started off with a splash, announcing in August 2000 that it had raised $90 million in its third round of funding. Since then, it added big-name board members like Mory Ejabat, chairman and CEO of Zhone Technologies and former CEO of Ascend Communications Inc. (see Amber Suiting Up for IPO?). But times have changed and so have market conditions. In May, the company reduced its workforce by 12 percent in an effort to cut costs (see Amber Networks Cuts Staff).

"It's a very good outcome for Amber," says Peter Wagner, a partner with Accel Partners, a firm that has invested in Amber. "It's also an important step in the development of the mobile IP network."

Amber's product is unique in that it is the first fault-tolerant router that allows one routing card to take over in the event of another's failure. The company has positioned itself at the metropolitan edge -- a good place to be, considering that most carriers are cutting back spending in the core of the Internet. But Amber’s competition is tough. In the long term, the 235-person startup was looking at a battle with big companies like Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks Inc. (Nasdaq: JNPR), and Unisphere Networks Inc. (Nasdaq: UNSP) for a place in carrier networks. And despite having carriers like Williams Communications Group (NYSE: WCG) and Enron Corp. (NYSE: ENE) as investors, the company hasn’t announced one customer yet.

In a conference call with press and analysts, many of the questions for Nokia executives focused on whether the Amber product would be used to build wireless or wireline networks.

Nokia officials said the product will be used as an edge router to support the construction of all-IP networks targeting wireless applications. But Nokia officials did not rule out selling the box for more conventional wireline networks.

"The product itself is about technology and platform and a platform that can be used for both wireless and wireline applications," said J.T. Bergqvist, Senior Vice President of Nokia Networks. Bergqvist said the platform will likely require more software development for wireless applications.

Other questions focused on Nokia's partnership with Cisco Systems Inc. (Nasdaq: CSCO) to resell Cisco routers. Nokia officials said it sees Cisco as the supplier of core routing technology, while Amber will provide routing equipment for the edge of the network.

“In terms with the Cisco relationship, this doesn’t effect our relationship with Cisco at all," said Bergqvist. "We are adding to our intelligent edge routing, while Cisco will remain an important component for IP backbone routing."

A Nokia spokesman said that the size of the acquisition, and the fact that it is a pre-revenue company, means the acquisition "is likely to have an immaterial effect on earnings."

- Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com



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