Alcatel & TiMetra Seal the Deal

Today, Alcatel SA (NYSE: ALA; Paris: CGEP:PA) announced it will buy stealthy IP/MPLS edge routing startup TiMetra Networks for $150 million in stock (see Alcatel to Buy TiMetra).

Light Reading broke the story of the possible acquisition on Wednesday (see TiMetra for Sale?).

The all-stock deal is a good one for TiMetra, which hasn’t yet revealed details of its IP service edge router and has no announced customers. Venture capitalists around Silicon Valley, who had speculated about the deal before it was announced, were surprised at the final price tag.

”Wow!” writes one VC, who didn’t want to be named, in an email to Light Reading. “What a ridiculous price. I'd like that banker representing TiMetra to be on my team! He can sell ice to Eskimos!”

If TiMetra turns out to be a sled-dog, it wouldn’t be the first time Alcatel overpaid for a startup. Back in 1998, it spent $325 million to buy Gigabit Ethernet startup Packet Engines. That acquisition went sour, and the company eventually shut down the division (see Alcatel's Packet Engines Break Down). Packet Engines' former CEO Bernard Daines ended up suing Alcatel over the deal gone bad (see Alcatel Settles with Daines).

But TiMetra says its irons in the fire are heating up. Basil Alwan, TiMetra’s president and CEO, admits the startup has been stealthy about its products, but he claims there are prototypes in customer trials. Details of the edge router will be announced at Supercomm 2003 in early June, he says.

Alwan says Alcatel wasn’t the only company interested in TiMetra. He claims the startup had multiple suitors that had made serious offers, some that included substantial cash in addition to stock. Some observers speculate that Siemens AG (NYSE: SI; Frankfurt: SIE) and NEC Corp. (Nasdaq: NIPNY) were among those interested.

Alwan denies that TiMetra has been desperately shopping itself around to find a buyer. He says the company was on the verge of signing a new term sheet for its third and final round of funding, when it decided at the last minute to entertain acquisition proposals. He claims the company had raised over $50 million in cash in its first two rounds.

The first round, led by Accel Partners, Redpoint Ventures, and an unnamed company, was for $23.6 million. A year later, in 2001, the company got another $25 million plus from an unnamed strategic partner, which Alwan describes as a major supplier. The round was never announced or reported, and details are still not available.

Alcatel seems pleased with the deal. “We did our due diligence and had been researching a number of alternatives,” says Tim Krause, senior vice president of the fixed communications group at Alcatel. “We have a lot of confidence in TiMetra’s technology, and we’re confident in the customer lab evaluations.”

All 90 of TiMetra’s employees, mostly engineers, are expected to stay with the company. Basil Alwan says he will also work for Alcatel, running the TiMetra product area. But he and Tim Krause say it’s too early to talk about specifics. The deal is expected to close in the third quarter of 2003.

Krause says the TiMetra router will fit in with Alcatel's 7770 Core IP router, 7670 Routing Switch Platform IP/MPLS switch, and Omni Ethernet switches.

Specifically, carriers will be able to use the TiMetra box to provide better service-level agreements to customers, Layer 2 MPLS VPN services, and virtual private LAN services (VPLS) -- a multipoint MPLS VPN service based on Ethernet.

TiMetra has been at the forefront of the VPLS standards developments (see Virtual Private LAN Service). Vach Kompella, an engineer working at TiMetra, is one of the authors of Lasserre–V.Komplella, the most widely supported VPLS draft in the Internet Engineering Task Force (IETF) (see Kompella vs Kompella).

But VPLS has strong critics. Luca Martini, a senior architect at Level 3 Communications Inc. (Nasdaq: LVLT) and the author of the widely used Layer 2 point-to-point MPLS VPN implementation, has told Light Reading that he thinks VPLS doesn’t scale well and that he really sees no useful or practical purpose for it. (To get more, check out his interview: Luca Martini, Level 3.)

There could another strike against TiMetra -- its router won’t support broadband aggregation, Alwan acknowledges. This could be viewed as a disadvantage. Cisco Systems Inc. (Nasdaq: CSCO) and Juniper already offer B-RAS (broadband remote access server) functions on their routers. Redback Networks Inc. (Nasdaq: RBAK) is supposedly adding it to its edge router, and Laurel Networks Inc. has recently announced B-RAS support (see Laurel Joins B-RAS Pack). IP service switches like those from CoSine Communications Inc. (Nasdaq: COSN), Network Equipment Technologies Inc. (net.com) (NYSE: NWK), and Nortel Networks Corp. (NYSE/Toronto: NT) also offer it (see CoSine Unveils Next-Gen Silicon).

This acquisition seems to be part of a trend. On Tuesday, Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) announced that it will acquire IP/MPLS multiservice startup Vivace Networks for $135 million (see Tellabs Snags Vivace for $135M). And last month, Ciena Corp. (Nasdaq: CIEN), which sells optical switching and transport gear, bought multiservice startup WaveSmith Networks Inc. (see Ciena Nabs WaveSmith). Two weeks ago, Lucent Technologies Inc. (NYSE: LU) announced its partnership with Juniper Networks Inc. (Nasdaq: JNPR) (see Lucent Partners With Juniper).

It’s no coincidence that all these partnerships and acquisitions are happening at once. Carriers are getting more and more serious about IP/MPLS deployments, and that’s forcing equipment vendors to quickly come up with strategies (see BellSouth Unveils MPLS Backbone).

“We’ve passed the point of IP/MPLS hype, and now it’s a reality,” says Stephen Kamman, an analyst with CIBC World Markets. “Carriers are asking for it now, but just like the transition to ATM in the early 1990s, it won’t happen overnight.”

— Marguerite Reardon, Senior Editor, Light Reading

Want a deeper understanding of MPLS? Check out the first module of Light Reading University's course on the topic. Click on this link to check it out for free!

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surething 12/4/2012 | 11:55:49 PM
re: Alcatel & TiMetra Seal the Deal You may want to take a look at Varros Telecom's (www.varros.com) XpressMS system.
ecipo 12/5/2012 | 12:00:13 AM
re: Alcatel & TiMetra Seal the Deal http://www.delloro.com/PRESS/P...
ecipo 12/5/2012 | 12:00:34 AM
re: Alcatel & TiMetra Seal the Deal Well, last year was last year, but Alcatel market share fell to 6% in the 1Q03 from 11% in 4Q02 in service provider router and multiservice switch market according to infonetics. This was the lowest market share in more than a year. Its market share was much lower than that of Lucent and Nortel which, just like Alcatel, have very little to do with the router market.
nixon 12/5/2012 | 12:00:35 AM
re: Alcatel & TiMetra Seal the Deal Yes, hidden tiger, you may be correct. I had hope for Corona Networks. How could a company sustain though all these tough times without having a good-plan? well....

The Alcatel and Timetra deal seems to end a chapter of edge routing/ip services history.

Hidden Tiger has been a strong follower of Corona, and I hope that your future endeavors work out better than this venture.
piotro 12/5/2012 | 12:00:42 AM
re: Alcatel & TiMetra Seal the Deal Well,
It looks like Newbridge acquisition was one of most successful. Last Year ALA moves from #3 to #2 in multiservice (ATM) marked. Huge share of DSL CO (32% ??) creates strong demand for all BB infrastructure. Today ATM is king here - many DSL customers goes to ALA for ATM core/agregation. Common ALA NMS (for DSL and ATM) is quite good selling point for ATM made by ALA for all today DSL deployers. It is case for FT/DT/TelecommAustria/Belgacomm, etc.

BTW: rumors are saying that currently almost all R&D pumped to ALA ATM platform are allocated to MPLS functionality. Knowing internal architecture I can say that 7670 might be pretty good MLS switch.
BTW: (last LR multiservice test were done with 6 months old 7670 firmware - so 3 stars results in some areas should be not so strange).

just my 0.02$

hiddentiger 12/5/2012 | 12:00:59 AM
re: Alcatel & TiMetra Seal the Deal Alcatel was Corona's last hope for existance and this deal with TiMetra will probably nail the lid on the coffin for Corona Networks.
dwdm2 12/5/2012 | 12:01:52 AM
re: Alcatel & TiMetra Seal the Deal "Who knows, maybe Alcatel's learned something.

From a distance, their acquisition history:
Packet Engines - a disaster
Xylan - merely crappy
Newbridge - going reasonably smoothly? Or not. I'm sure someone has the scoop ;-)..."

What about Kymata? Looks like ALA really gained some awesome technology. My question is: are they making any good use of it?
gigeguy 12/5/2012 | 12:01:54 AM
re: Alcatel & TiMetra Seal the Deal Perhaps this is a bit backwards ... first you sell the company and then you launch it .... but TiMetra will be doing a major company launch at Supercomm, including announcing multiple customers, one of which is a nationwide US plus international carrier that starts with the letter "M". No guessing, now! TiMetra also has gear in the interoperability booths at Supercomm. So Alcatel doesn't have to worry about the equipment working.
priam 12/5/2012 | 12:01:55 AM
re: Alcatel & TiMetra Seal the Deal Who knows, maybe Alcatel's learned something.

From a distance, their acquisition history:
Packet Engines - a disaster
Xylan - merely crappy
Newbridge - going reasonably smoothly? Or not. I'm sure someone has the scoop ;-)
Anyway, g'luck to them all....
Gigaboy 12/5/2012 | 12:01:56 AM
re: Alcatel & TiMetra Seal the Deal >> definite top-notch. The key for ALA here, is does the deal lock in the good guys? If Basil is only around for a year and his best guys go with him, then the deal is worthless. You gotta buy the team for the next gen product. If they landed the team commitment, then maybe this goose the price. (Up $100mil more?? I dunno)

Take the money and run. Just a tip, from
experience in this department. With Alcatel there is no second generation equipment. They will bog it down and cancel it mid development so many times that it will just kill the company. Slowly over time disillusioned engineers will quit, tired of having Dirk's crap architectures and losy code shoved down there throat in the interest of having "one Architecture".Avoid the slow death that only awaits in dealing with Alcatel. Been there done that!
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