Alcatel Acquires Astral Point -- Cheap

Good things come to those who wait. Over a year after Alcatel SA (NYSE: ALA; Paris: CGEP:PA) first put out feelers to purchase Astral Point Communications Inc., it's agreed to buy the startup for stock worth a mere $135 million (see Alcatel To Buy Astral Point).

Alcatel says the acquisition will increase its strength in the U.S. metro Sonet market. Astral Point, founded in 1998 and based in Chelmsford, Mass., makes a multiservice provisioning platform that combines a crossconnect with DWDM and Sonet add/drop multiplexing capabilities.

Reportedly, Alcatel got as far as drawing up papers on the deal last year, but top execs backed out, possibly because Alcatel's other activities interfered (see Alcatel Seeks to Buy Optical Startup, which we summarized in November 2000 as follows: Something optical, metropolitan, and cheap, s'il vous plait. Astral Point, perhaps?).

Over a year later, the buyer's clearly got a bargain. Terms of this acquisition are substantially lower than comparable agreements -- such as the $355 million recently laid out by Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) for Ocular Networks (see Tellabs Nabs Ocular) or the $421 million Nokia Corp. (NYSE: NOK) bid for Amber Networks in July (see Nokia Nabs Amber for $421M).

Is more than the downturn at work here? Was this a "fire sale," in which lack of new funding forced the startup to sell out or go bust?

The startup's not saying that, but it's clearly had its problems. Despite $115 million in venture funding, it's generating just $4.5 million in revenues annually to a handful of customers. In addition, there have been ups and downs with those customers, the cancellation of an early product, and layoffs (see Astral Point Slims Down). The startup's now down to 175 employees from 250 last year. Alcatel says it hopes to hold onto the existing workers, particularly in management and R&D.

"There's a lot of cutback in the metro space," says Steve Kamman of CIBC World Markets. "As a result, VCs are telling us a lot of startups will just plain get cut off this year."

Alcatel, obviously pleased with the purchase, didn't dwell on the price with analysts and media today. "We had to do something on the Sonet side of our business, and this is positive for us all," said Christian Reinaudo, president of Alcatel's optics activities, in a conference call this morning.

Reinaudo said Alcatel hopes to use Astral Point's product to buttress its own line of metro products, including the 1680 Optical Gateway Cross-Connect (OGX).

He said it was important that the startup was able to demonstrate shipping products -- even though only one of its products, the ON 5000, is actually shipping. The ON 7000, announced last year, is presently in beta test with several prospects, including one ILEC (see Astral Redirects Its Point, Astral Point Starts ILEC Beta, and Astral Point Starts Beta Test). It is expected to ship commercially this quarter.

Astral Point added Sonet STS1 grooming capabilities to its platform with the unveiling of the ON 7000 last year, about the same time rumors first surfaced that Alcatel had come calling.

Alcatel plans to begin selling Astral Point products as-is from its U.S. headquarters, migrating them into Alcatel's network management system within six to eight months. Alcatel also plans to integrate Astral Point's technology into its hardware, using the startup's DWDM and Sonet grooming capabilities to add density to existing Alcatel gear.

Some observers applaud the acquisition, despite the lowball figure. "Wow, that's a low price," says Frank Dzubeck, president of Communications Network Architects (no Website), who acts as an advisor to Astral Point but apparently hadn't heard the published sales figure. "But it's a good fit."

Dzubeck says Astral Point's knowledge of ATM (which he says was a key part of its now-superseded original product) was vital to the choice, since Alcatel relies heavily on ATM in its products.

Also key were Astral Point's early entry to the multiservice provisioning market and its entrée with RBOCs through its certification efforts (see Astral Point Extends OSMINE Effort and Astral Point Wins ISO Certification).

"Astral Point's gotten into RBOC labs, which Alcatel dreams of," Dzubeck says. Despite its ATM orientation, Alcatel hasn't penetrated RBOC networks, which are also ATM-based, to an extent anywhere near to its liking.

Astral Point is only the second optical networking vendor Alcatel's bought within recent months. Indeed, the vendor seemed to lose its optical appetite after acquiring component maker Kymata Ltd. in September 2001 (see Alcatel Optronics Acquires Kymata). But the price was right. And Alcatel apparently thinks it needs the Sonet provisioning capabilities Astral Point has to offer.

Reinaudo stressed this point today, saying Alcatel's acting on forecasts that Sonet will continue to dominate carriers' networks in North America for the foreseeable future. By 2004, Alcatel says, two-thirds of the North American metro optical transport market will still be Sonet-based.

Dzubeck says it's a market that's heating up, driven largely by ongoing developments in streaming video. Multiservice provisioning platforms will likely get scooped up by larger players as demand for metro bandwidth increases due to streaming media applications. "This isn't the last acquisition you'll see in this space, by Alcatel or anyone else," he says.

Alcatel says the acquisition, which is expected to close this quarter, won't affect Alcatel's financials for 2002, but the company hopes to start realizing revenues from Astral Point's products in 2003.

At press time, Alcatel shares were trading at $15.29, down $0.40 (2.55%). — Mary Jander, Senior Editor, Light Reading
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realdeal 12/4/2012 | 11:00:45 PM
re: Alcatel Acquires Astral Point -- Cheap Friend told me it was 30 cents per share and most paid more than that for the options and lost on the transaction. Hummmm, didn't they turn down a 1.5bil bid last year thinking they could get more? Would you like a bagel with that egg on your face?
fleshpeddler 12/4/2012 | 11:00:46 PM
re: Alcatel Acquires Astral Point -- Cheap
smack is exactly what ciena must be on...
Lafite 12/4/2012 | 11:00:48 PM
re: Alcatel Acquires Astral Point -- Cheap You are exactly right, and that's exactly
why I was having a hard time figuring out
why Ciena would care...
..and I don't mind the ribbing! These boards
are all about trading a little smack among friends. I do appreciate your insights though,
so please, keep them coming.
broadbandboy 12/4/2012 | 11:01:17 PM
re: Alcatel Acquires Astral Point -- Cheap Lafite: "Well that would be nice if I were a member of the press or at a trade show, but seeing as how
I'm neither, and seeing as how I am sure I can
recognize a line card when I see one, and have been in most of the large COs on the east coast, well, that makes your point all the more moronic doesn't it? Why don't you try and do us all some good and try and answer the initial question?"

Sorry Lafite, I was just trying to inject a little humor.

OK, why would Cienna be interested in Equipe? Frankly, It does not make sense to me, unless they see the Equipe box as a big 10 Gig MSPP? They might want to move up from transport into data switch switching?

The Equipe box is a core ATM switch with an optical cross-connect, right? So maybe thats the connection. Still, sounds a little far fetched to me.


flanker 12/4/2012 | 11:01:22 PM
re: Alcatel Acquires Astral Point -- Cheap My research

Catch you on the the next wave.
Peace and strength, Y'all.
Lafite 12/4/2012 | 11:01:25 PM
re: Alcatel Acquires Astral Point -- Cheap Broadband boy,
Well that would be nice if I were a member of
the press or at a trade show, but seeing as how
I'm neither, and seeing as how I am sure I can
recognize a line card when I see one,
and have been in most of the large COs on
the east coast, well, that makes your point all the more moronic doesn't it? Why don't you try and do us all some good and try and answer the initial question?
broadbandboy 12/4/2012 | 11:01:27 PM
re: Alcatel Acquires Astral Point -- Cheap Lafite: "Can anyone please provide a reasonable
rationale as to why Ciena would want Equipe?
I visited Equipe several months back, and
they had a very cool box exterior, but when
we looked inside it, there was nothing there!
It looked like it hadn't been built.."

Didn't you ask them why it was empty? Like, Hey! Where's the switch?!

A good explanation would be all the units they have built are out in field trials, but that should have come from them.

I have seen empty cabinets at trade shows; sort of Dilbert-demos with nothing inside. Some vendors figure press and analysts are too stupid to know the difference(Grin). Hmmm, I think I just answered my initial question...

broadbandboy 12/4/2012 | 11:01:28 PM
re: Alcatel Acquires Astral Point -- Cheap I hear its all Cisco, likely MGX8850 for MPLS.
Not Lucent.
myresearch 12/4/2012 | 11:01:28 PM
re: Alcatel Acquires Astral Point -- Cheap >>Employees basically get 63 ALA shares for every 1000 shares of AP. If you assume ALA is at 15/share, thats $.945 per share. Could be less than many of them paid for the shares in the first place. Ouch.<<

This happens to many compnaies. In addition to losing what you paid for, you may have paid Alternative Minimum Tax (AMT) last year when you excised (the valuation at that time may be very high, so the AMT liability was high). Do your work before you excise:-)

myresearch 12/4/2012 | 11:01:29 PM
re: Alcatel Acquires Astral Point -- Cheap

>> I'll give you a "C+" for being aggressive enough to tackle dilution. but there are a lot of posters looking at your note and scratching their heads.<<

Give me a break! You are in no position of marking other's since you calculation is obviously wrong.

Let me say this again, your calculation is
totally wrong. In your previous posting, you

> Round 2: 30mln @110mln valuation
> (6,000,000 shares @ $5) = 24% of shares auth.
> Round 3: 60mln at 500mln valuation
> (6,000,000 shares at $10 = 24% of shares auth.

This is obvious incorrect. The valuation is increased close to 5 times, from $110m to
$500m, how come investing $30m and $60m
get the same amount of shares???

Learn the basics before you pose here as an
expert. Explain with your numbers rather than
attack others with handwaving.

For people who want to learn, there are a
lot of info on the web. For simple tutorials, see

PS: Tired of people who has a big ego
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