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Transmode, Lumentis MergeTransmode, Lumentis Merge

Swedish WDM vendors join forces, claiming the move is driven by growth potential and not survival

March 23, 2005

4 Min Read
Transmode, Lumentis Merge

Swedish optical vendors Transmode Systems AB and Lumentis AB have merged to create a unified CWDM and DWDM vendor with more than $16 million in annual sales from over 100 customers.

The privately-held Stockholm-based companies, which have jointly raised a total of $81 million, insist this is a merger rather than an acquisition, and that the deal has been driven by market opportunities and growth potential, and not because of the need for cost reductions or basic financial survival (see Transmode Gets $15M More and Lumentis Gets $9M).

It's clear, though, which of the two firms has the greater muscle. Transmode CEO Isaac Olasoko will head the new company, which will be called Transmode. The firms say they're still discussing what long-term role Lumentis CEO Anders Lundberg will play in the new venture, and will announce more detail about the new company's management structure in the coming weeks.

That balance of power reflects the two companies' 2004 sales performance: Transmode generated $11 million in revenues last year, while Lumentis recorded sales of $5.5 million (see Transmode Doubles Revenue ).

Those revenues have come largely from Northern European deployments, though both companies have recorded success elsewhere on the continent (see Norway's BaneTele Picks Lumentis, Lumentis Wins Baltic Order, Tiscali France Picks Transmode, Arche, Song Picks Transmode , Transmode Wins Swiss Cable Project, and Lumentis Supplies I.NET ).

Transmode certainly has global aspirations, though, and has opened offices in North America and Asia (see Transmode Appoints US VP). "We plan to be a top five player in the global metro optical market within three years," Olasoko says.

Olasoko says no cash was involved in the merger of the two companies. The new company's shares were simply divided between the existing investors according to an agreed (and undisclosed) ratio. "The shareholders saw the value of the deal very, very quickly," Olasoko adds.

Lundberg says he's long admired the way Olasoko has run Transmode. He's "extremely pleased" that Olasoko is now in charge of the combined company. "It's a marriage," and he'll be sticking around, he told Light Reading this morning.

So what's the immediate impact of the merger? The companies say there will be some consolidation during the coming months but that this will result in very few job losses. The new company will employ about 100 staff, just a few less than the current combined total.

They also claim that none of the vendors' products will be killed off and that there is no product overlap. Transmode has developed CWDM and DWDM equipment used by enterprises and by carriers at the edge of their metro networks (see Transmode Launches Sonet/SDH Edge Device), while Lumentis has developed products primarily for carriers' citywide, regional, and medium-haul networks (see Lumentis Extends CWDM Range to 120 km and Lumentis DWDM Under Baltic Sea).

Olasoko says the merger will give Transmode the extra muscle it needs to target bigger customers, ones that generate more dependable revenue streams. The new Transmode has cash reserves on a par with those of ADVA AG Optical Networking (Frankfurt: ADV), a company that Transmode clearly sees as a role model. The new Transmode will also have the scale to address big carrier requirements, such as online ordering and automated quality control systems, according to Olasako.

The new Transmode expects to generate its revenues from three sources: one third from the old Transmode's 1100 CWDM product line (see Transmode Demos Pluggable DWDM, Transmode Wins Swiss Cable Project, and Transmode Broadens CWDM Portfolio); one third from Lumentis DWDM products such as the high capacity, multi-unit M3000, the more compact M301 platform, and the pizza-box single-unit M101; and the final third from Transmode's multiservice provisioning platform (MSPP), the Transmode Service Extender, or TSE (see Transmode Launches Sonet/SDH Edge Device and Micro MSPPs Are Big).

But Transmode still won't disclose the identity of its major OEM partner. Alcatel (NYSE: ALA; Paris: CGEP:PA), ECI Telecom Ltd. (Nasdaq/NM: ECIL), and Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) remain the prime candidates (see Transmode Branches Out).

The merger comes as the market for metro WDM equipment is growing like wildfire, according to the latest market research from Infonetics Research Inc. (see Infonetics: Metro WDM on Fire).

— Peter Heywood, Founding Editor, and Ray Le Maistre, International News Editor, Light Reading

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