Centerpoint Scoops Up Zaffire

After being on the auction block for the past several months, Zaffire Inc. has finally been sold (see Centerpoint Acquires Zaffire).

Centerpoint Broadband Technologies Inc., a privately held company that is building products with FDM (frequency-division multiplexing) technology, announced this morning that it has agreed to acquire Zaffire and its 150 employees in a stock swap. The exact amount of the deal is unknown.

Zaffire, which had raised about $100 million dollars, has struggled to stay alive as it has wrestled with management issues that have caused the company to change chief executive officers three times in the past nine months (see Zaffire: 'We're not for Sale').

“It’s no secret the company has had some issues. I read Light Reading,” says Dana Waldman, president and CEO of Centerpoint. “But the technology is extremely well thought of, and WDM had been a part of our road map for a long time.”

The first order of business has been to get rid of Zaffire’s old management team. Near Margalit, the founder and two-time CEO of Zaffire, will likely stay on with the company, but the rest of the upper management team will be let go, says Waldman.

“They’re doing this the right way,” says Chris Nicoll, vice president of Current Analysis. “They’re acquiring the technology and the team that developed it and doing away with the management structure. The key value nugget in Zaffire isn’t the market positioning or the management team; it’s clearly the technology, and they needed someone else to leverage those assets.”

Centerpoint wasn’t the only company sniffing around Zaffire. The startup’s inexpensive metro-area dense wavelength-division multiplexing (DWDM) solution and digital wrapper technology had sparked interest from public companies like Ciena Corp. (Nasdaq: CIEN), Marconi Communications PLC (Nasdaq/London: MONI), Alcatel SA (NYSE: ALA; Paris: CGEP:PA), and Redback Networks Inc. (Nasdaq: RBAK), which were all rumored to be hanging around the San Jose headquarters kicking the tires and making offers during the past four or five months (see Zaffire May Have a Buyer).

While all these other companies could have found a place for Zaffire’s technology in their product lines, Centerpoint seems to have needed it the most. Why? Centerpoint uses FDM technology to pack up to 32 Gbit/s worth of traffic onto a single wavelength. Meanwhile, Zaffire’s DWDM system can pack several wavelengths onto a single fiber. What Centerpoint lacked was the DWDM transport system.

“No carrier is using multiple vendors for wavelength services,” says Nicoll. “You really need to own the entire solution. Otherwise it’s a management nightmare.”

Adding DWDM to its product offering should further strengthen Centerpoint’s position against its main competitor Kestrel Solutions Inc., which is also developing an FDM product. Kestrel demonstrated interoperability with DWDM gear at the Optical Fiber Conference in March, but it didn’t name a specific vendor’s product. And considering that it just laid off about 120 employees last week and is also in the midst of repositioning, it doesn’t look as though Kestrel will be adding DWDM capability anytime soon (see Kestrel Quietly Reconfigures).

One big hurdle facing the combined company is customers. So far, Centerpoint hasn’t officially announced any. And the only two that Zaffire has announced, BroadBand Office Inc. and FiberStreet, have both gone out of business in the last six months (see Zaffire Gets Zapped). But Waldman says that Zaffire is very close to announcing a large European contract soon. Sources close to the company have confirmed this and say that Zaffire has already signed a major deal with Flag Telecom (Nasdaq: FTHL; LSE: FTL) in the U.K.

While the merger clearly had some concrete benefits for Centerpoint, what about Zaffire? Being acquired by another private company is not usually the ideal exit strategy for investors, since the ultimate return is still uncertain and locked up in an unrealized entity. But given the current market conditions, being acquired by a public company would probably have generated even less value.

“The way I look at it,” says one former Zaffire employee. “It has bought them some more time. I’m sure they are all sitting around hoping the market will turn around and Centerpoint will hit it big.”

- Marguerite Reardon, Senior Editor, Light Reading

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TDR 12/4/2012 | 8:07:36 PM
re: Centerpoint Scoops Up Zaffire The fundamental problem of Zaffire is its founder. He is still a kid, and Zaffire is just like his playground. To run a real company is not like playing a game in kindagarden.
Joeboo 12/4/2012 | 8:07:34 PM
re: Centerpoint Scoops Up Zaffire I wouldn't agree with that. Whoever made the decision not to go IPO or be bought late last summer is to blame (maybe Near, maybe not). In the red-hot IPO market of a year ago, Zaffire would have raised some cash to sustain themselves during this down market. Now they have no choice but to be bought by another struggling startup or go broke.
USA 12/4/2012 | 8:07:34 PM
re: Centerpoint Scoops Up Zaffire If it were only that simple...When you start out with an inexperienced executive team that was more interested in artificially inflating the company's evaluation so they could IPO the company and get rich quick. You then compound the problem with an engineering team that was unable to focus on a single product and as a result wasn't able to turn out a solid product. Add to that management shuffles and a soured economy, you end up with a Zaffire.
USA 12/4/2012 | 8:07:34 PM
re: Centerpoint Scoops Up Zaffire Maybe true, but any company that can burn through $100 million in cash and end up with nothing more than a semi-functional DWDM box can't be helped by throwing more money at them.
pablo 12/4/2012 | 8:07:27 PM
re: Centerpoint Scoops Up Zaffire
All the harsh opinions... one must wonder why Zaffire raises the passion level of many people so much. The only facts that matter, truly, are that they were one of the first companies to try to address the Metro space with some innovation on top of the cerent method. Sure, the opportunities last year were staggering, but then again, even good management teams can't be expected to have accurate crystal balls. Just like everybody else in this market, Zaffire assumed the big payoff lay further in the future. Not a unique mistake. I can imagine given their somewhat unique position at the time, they could be more bitter about it than many others, and maybe that caused some of the internal friction.

In the end, though, they have successfully implemented an exit strategy, and have not gone bankrupt. A year from now, of course, we will be wiser. We will see how many companies manage to score an exit strategy if things get even worse.
nearfield 12/4/2012 | 8:07:26 PM
re: Centerpoint Scoops Up Zaffire 1) An ignorant, arrogant founder who has zero industry experience, who
a). built a clueless management(Blind leading blind).
b) could not get along with anyone. None of the original team members left. (blind fighting blind)
2). An engineering team whose most valueable members are teenager kids.(Blind leading blind).
3). Everyone blames someone else instead of fixing the problem. (Blind fighting blind).
4). The unique architecture, technology, etc
are all jokes. Tell Ciena about it. The only thing unique about Nearfield: It becomes a
textbook example for investment community,
despite of KP.

pavlovsdog 12/4/2012 | 8:07:24 PM
re: Centerpoint Scoops Up Zaffire I thought that Zaffire used time-division multiplexing for signal aggregation. Whats FDM used by Centerpoint? Is FDM competing with TDM, or are they complementary?
Optical Attitude 12/4/2012 | 8:07:22 PM
re: Centerpoint Scoops Up Zaffire I saw a presentation on this recently, it goes something like this...

DWDM and FDM are complimentary. In short, FDM takes multiple customer-side input signals (Sonet OC3/13/48, GigE, FC, etc..) and converts them to individual FDM signals (like cable TV) and are multiplexed and then modulated onto a standard ITU wavelength. In Centerpoint's case, each of these wavelengths contain up to 20 Gbps of OC3/12/48, GigE, and FC.

Now take each of those 20Gbps signals and feed them into a DWDM mux; not a transponder, but an actual optical filter that has the same wavelength as the output of the Centerpoint box.

In other words, any 16-channel DWDM mux combined with the Centerpoint solution, can yield up to 128 OC-48s of traffic (8 x OC-48s/wavelength). They use the analogy that FDM is to DWDM, what DWDM was to Sonet back in the early 90's.

I was looking through the NFOEC guide and noticed that Centerpoint is presenting several papers (3 or 4). You should check out their technology, it's pretty cool.
USA 12/4/2012 | 8:07:22 PM
re: Centerpoint Scoops Up Zaffire signal aggregation, TDM ?? HA, what a joke. The closest they will come to that is thin-muxing some OC3s or OC12s onto an OC48. They only have gear that can provide wavelengths. Not bad for $100M...?
your_mama 12/4/2012 | 8:07:22 PM
re: Centerpoint Scoops Up Zaffire dudes, dudettes,
come on...O-FDM uses an ANALOG multiplexing
technique (Centerpoint, Kestrel)...Zaffire
uses DIGITAL wrappers (Zaffire)....a layman
can tell you there is not much synergy there...
about all you can do is monitor the digital
framers of a composite analog signal...no FEC
of the combined FDM signal, a key advangtage
of digital wrappers gonzo....read what you may,
this is two 40-year old virgins hooking up....
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