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Optical/IP

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
http://www.lightreading.com

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duffeck 12/4/2012 | 8:06:33 PM
re: Centerpoint Scoops Up Zaffire Looks like its already working

http://www.centerpoint.com/htm...

duff
sbaker 12/4/2012 | 8:07:07 PM
re: Centerpoint Scoops Up Zaffire Is there anyone really know how much Zaffire
is valued in the deal. There is no point to
hide the facts, unless the valuation is really
low. Maybe less than 60 million.
Optical Attitude 12/4/2012 | 8:07:14 PM
re: Centerpoint Scoops Up Zaffire Since 1999, Centerpoint has raised $200M in funding. $130M as recently as Oct 2000. Since this was an all stock deal, they didn't have to use any of the cash in the bank.

I hear Centerpoint's wireless business is bringing in revenue and they tout that their burn rate is lower than most because of the wireless business.
gpearson 12/4/2012 | 8:07:15 PM
re: Centerpoint Scoops Up Zaffire One thing that Zaffire tried to do that is really needed in the Metro DWDM space is auto-power balancing. The whole idea of plug and play is something my company (a large RBOC with a taste for Tex-Mex) is going to need to roll-out DWDM in a big way. Otherwise, you're asking each Tech out there to "become one with the Optical Spectrum Analyser". Personally, I can adjust VOA's all day long. But, it's a crummy way to make money.

Moral of the story: You can Dis Zaffire all you want. But, be smart. Include "Plug-and-Play" in your own Metro DWDM design if you plan to sell it to a reasonably large company.
myresearch 12/4/2012 | 8:07:18 PM
re: Centerpoint Scoops Up Zaffire Could anyone tell me how this marriage will
help both? Zaffire needs cash injection but
Centerpoint is an (old) startup itself.
How much money does Centerpoint have?
When will the combined company burn through
the bank?

MR
opticaltoys 12/4/2012 | 8:07:20 PM
re: Centerpoint Scoops Up Zaffire L.R.: "The exact amount of the deal is unknown."

According to the hebrew edition of "Globes", an Israeli paper, Zaffire was valued $200M at the deal.

http://www.globes.co.il/

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....
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?
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