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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glowingduck 12/4/2012 | 11:02:05 PM
re: Alcatel Acquires Astral Point -- Cheap " Don't know how real it is but you might want to send them that RFP/RFI."

Believe me, sending out RFPs, RFIs, RFQs, etc is all the big carriers know how to do anymore. They're hoping to find one vendor so desperate for $$ that they'll promise OC-768 on a Playstation with free upgrade for life if that's what you want.

White Rock ASKED for the RFI a year ago!
cyber_techy 12/4/2012 | 11:02:07 PM
re: Alcatel Acquires Astral Point -- Cheap --
You must be a real weenie if 50lbs is too much for you though. I hear there's alot of empty space just south of 60 Hudson. Maybe WorldCom could build a new CO and a gym for the 50 lb weenies

The signs of current times. A duck challenging a guy
glowingduck 12/4/2012 | 11:02:07 PM
re: Alcatel Acquires Astral Point -- Cheap Despite all his NYC goombah bluster, Telecom_Guy didn't miss the point completely. But by the time Alcatel integrates Astral Point into the dysfunctional Alcatel family, no one will care if NE weighs 50 pounds or if it runs on a Palm Pilot.

You must be a real weenie if 50lbs is too much for you though. I hear there's alot of empty space just south of 60 Hudson. Maybe WorldCom could build a new CO and a gym for the 50 lb weenies.
crossconnect 12/4/2012 | 11:02:07 PM
re: Alcatel Acquires Astral Point -- Cheap We're definately missing the point. Let's get refocused here.
optigirl 12/4/2012 | 11:02:07 PM
re: Alcatel Acquires Astral Point -- Cheap I think he was referring to my earlier post and gee, I thought 50lbs was pretty good for a 120lb woman. Maybe someone is feeling hostile today?

sg38 12/4/2012 | 11:02:10 PM
re: Alcatel Acquires Astral Point -- Cheap I agree wholeheartedly. Those who left were forced to take the stock, at much higher price, even for some current employees. Good luck for AP employees who still have their jobs there.

BTW, nobody really give a true answer on how the stock conversion is done. Any idea?

Route495 12/4/2012 | 11:02:10 PM
re: Alcatel Acquires Astral Point -- Cheap >Ciena would do well to take in Equipe. Good match.

I hope it works out for the sake of the employees. The alternative seems to be a low valuation round accompanied by the usual badness.
newlegacy 12/4/2012 | 11:02:10 PM
re: Alcatel Acquires Astral Point -- Cheap Excellent point Telecom Guy!!!

Take a look at White Rock Networks stuff (url: www.whiterocknetworks.com). They claim to have a line of 'stackable' components with which you can build the kind of element you need at any given site. E.g., you can build an OC-48 Ring ADM dropping 8 OC-3s in just 1 rack space! If you need some DS3s, just connect up a 3 RU chassis and you can equip up to 48 DS3s. If you need OC192 it looks like you have to go to (oh my!) 2 rack spaces (but you can drop up to 8 GbE from the same shelf!)

Don't know how real it is but you might want to send them that RFP/RFI.
yomama 12/4/2012 | 11:02:13 PM
re: Alcatel Acquires Astral Point -- Cheap right on Litewave, I heard the same thing a couple of months ago when I was having lunch with a couple of former Cascade\Ascend\Lucent buddies that they are in need of some greenbacks.
flanker 12/4/2012 | 11:02:14 PM
re: Alcatel Acquires Astral Point -- Cheap Give your nodes the test I'm going to start to implement for all of my CO's: Can you lift and carry a fully loaded NE with your own hands? I'm going to have that as part of my requirements doc on all our RFP's from now on before you even walk into the door.

How about "Does it fit in the overhead rack of a 757"?

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