Comms chips

Cortina Buys a PON Plan

Cortina Systems Inc. is getting into PON (passive optical networking) chips, and a possible growth market, with the acquisition of ImmenStar Inc.

The deal was announced yesterday after the markets closed. (See Cortina Acquires ImmenStar.) Terms were not disclosed, but the price was pretty small.

"It's not as big as the Intel acquisition," says Cortina CEO Amir Nayyerhabibi, referring to the $115 million purchase of Intel's optical-networking chips. (See Intel Hands Off to Cortina and Cortina's Comfortable With Intel Inside.)

That's probably an understatement. "Last time I spoke to Immenstar, they had only raised about $5 million or thereabouts," says Jag Bolaria, an analyst with The Linley Group . Even with another round, it's doubtful Immenstar raised more than $10 million total, Bolaria says.

Immenstar's EPON (Ethernet PON) chips compete with parts from Centillium Communications Inc. , PMC-Sierra Inc. (Nasdaq: PMCS), and Teknovus Inc. Immenstar is also working on GPON (Gigabit PON) chips, which would pit it against companies like PMC, BroadLight Inc. , and new entrant Mindspeed Technologies Inc. (Nasdaq: MSPD). (See Immenstar Adds GPON and Mindspeed Joins GPON Race.)

Nayyerhabibi calls the deal a way of "proliferating our technology closer to the edges of the network," but this could also be Cortina's bid to get into a faster moving market. The Intel deal bulked up Cortina -- to $120 million in revenues from $20 million previously, Bolaria estimates -- but doesn't offer much of a growth market.

Should Cortina want to go public, that could be a handicap. "The problem with going public with that kind of product line is people will say, 'Your market isn't growing, so where will your growth come from?' Buying somebody like Immenstar gives them that growth story," Bolaria says.

Cortina's purchases give it multiple inroads into Cisco Systems Inc. (Nasdaq: CSCO), which is said to be using Cortina's Resilient Packet Ring Technology chips, the former Intel chips Cortina acquired, and traffic-management chips from Azanda Network Devices, which Cortina purchased in 2005. (See Azanda Lands a Buyer.)

"They're well connected in the industry, and clearly they can raise money," Bolaria says. "I wouldn't be surprised if they went off and made a couple more acquisitions to shore up their new product development and growth positions."

Immenstar's 50 employees are all expected to join Cortina, bringing the latter's headcount to somewhere around 230, Nayyerhabibi says. A little more than half of Immenstar's employees are in Santa Clara, Calif. The rest, in Shanghai, will give Cortina a second Asian site, along with one in Shenzhen, China.

Immenstar counts UTStarcom Inc. (Nasdaq: UTSI) as a customer and investor -- UTStarcom invested $2 million in the startup, according to SEC filings. (See UTStarcom Sues Passave.)

— Craig Matsumoto, West Coast Editor, Light Reading

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