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C-COR Opts for Optinel

Light Reading
News Analysis
Light Reading
8/30/2004

C-COR Corp. (Nasdaq: CCBL) continued its acquisition binge as it today announced it was buying Optinel Systems in a deal that could be worth as much as $15.5 million (see C-COR to Buy Optinel). The purchase gives C-COR more optical transport products to offer cable operators while it continues to compete for equipment business against Motorola Inc. (NYSE: MOT), Harmonic Inc. (Nasdaq: HLIT), Arris Group Inc. (Nasdaq: ARRS), and Scientific-Atlanta Inc. (NYSE: SFA).

C-COR says it will make an initial cash payment of approximately $9.5 million and the assumption of certain liabilities. Later, it could pay as much as $6 million more, provided Optinel meets certain sales objectives in the 13-month period following the deal's closing.

The purchase is expected to be completed in the first quarter of C-COR’s fiscal year 2005. Once the deal's done, Optinel will become part of C-COR’s expanding Broadband Communications Products business segment.

C-COR predicts that Optinel will add approximately $7 million in net sales and contribute to earnings within a year after the deal's closed.

Optinel’s point-to-point optical transport products give cable providers the ability to simultaneously transmit video, data, and voice traffic in their native formats over long distances. This boost to the cable transport network allows operators to offer services such as video-on-demand, high-speed data, and cable telephony services, in addition to their regular broadcast TV lineup.

The startup wasn't always aiming for the cable market. In fact, it only began chasing that space in 2002, shortly after it closed a second funding round of $22.4 million from nine investors and failing to score big with telecom carriers. Its original backers were Optical Capital Group (now OCG Ventures LLC) and Novak Biddle Venture Partners.

As of December 2002, the last time Optinel made a public funding announcement, the company had raised $30 million in funding. So the initial payment as part of its acquisition is only about 32 percent of what was invested in the company as of late 2002. For C-COR, Optinel looks to be an inexpensive piece of an acquisition expansion. Already this year, C-COR has bought Alopa Networks for its cable subscriber activation and management software; Lantern Communications for its packet-based transport and Ethernet connection products; and Stargus for its network and service analysis software (see C-COR Purchases Stargus and C-COR Extinguishes Lantern).

C-COR has spelled out its acquisition plan in the past. Officials say the company is striving to build resilient, optical packet transport networks, and it is building a software set of products that allows cable providers to manage the new packet-based services it'll no doubt be turning on in the next few years.

The Optinel purchase "rounds out" C-COR's packet transport plans, according to C-COR CEO David Woodle. While Lantern's transport products were mainly for metro ring topologies, Optinel's solutions were intended for point-to-point applications, so the two companies are complementary, he says.

"[Optinel has] been running over a $1 million a quarter… so the projections we see are pretty steady," Woodle says. He says eventually all cable services will be carried over a packet-based infrastructure, and with Optinel in place, C-COR will be well positioned to address that network transition.

C-COR shares were down $0.40 (4.77%) to $7.98 in early afternoon trading on Monday.

— Phil Harvey, News Editor, Light Reading

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