The deal, first reported in November by The Marker.com, gives ECI a play for the core-router market and gives Chiaro a shot at just plain surviving (see Report: Chiaro Courting ECI).
The companies aren't disclosing details about the option to acquire, which comes with stipulations related to Chiaro's performance. On a conference call with analysts this morning, ECI chief executive Doron Inbar said there's a "very high chance" the acquisition will go through.
Chiaro is ready to ship its Enstara core router in production, but officials admitted Chairo isn't likely to generate much in revenues during the next 12 months. What's more important during that timeframe is to get footholds with Tier 1 carriers, Inbar says.
The money involved is a droplet compared with Chiaro's $210 million raised since 2000, but the investment nets Chiaro a badly needed backer. Support from ECI's sales and marketing team is "the key enabler now for us to go to market," Lewis says.
Of course, the money won't hurt either, as 125-employee Chiaro was clearly in need of a funding booster shot (see Chiaro Seeks Its Footing).
A big-name partner is important because Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR) dominate the core router market. Even after years of sales, third-place finisher Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7) has yet to grab more than a few percentage points of market share. Startups have little chance to break those ranks, as telecom firms aren't likely to trust their network cores to startups.
As a result, most core-router ventures have collapsed, with Procket Networks being the latest casualty (see Procket Reaches 'End of Life'). Among the survivors, Axiowave Networks Inc. is hanging by a thread -- the result, some say, of its only customer getting swallowed up by Cogent Communications Group Inc. (Amex: COI), a firm with ties to Cisco (see Did Cogent's Aleron Buy Boost Cisco?).
Inbar says ECI benefits by getting a better play in the IP market, targeting the large service providers planning to converge their networks into a core based on IP and MPLS. ECI has seen IP become increasingly important in its other product lines, including access gateways and multiservice provisioning platforms, and the company now can add core routers to the package, he said.
— Craig Matsumoto, Senior Editor, Light Reading
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